The following is excerpted from “Managing Environmental Liability in Transactions and Brownfield Redevelopment” by Lawrence Schnapf and published by Juris Legal Publishers.

ABANDONMENT OF CONTAMINATED PROPERTY UNDER THE BANKRUPTCY CODE
Section 554(a) of the Code permits a trustee to abandon property that is" burdensome or of inconsequential value or benefit" to an estate.  Since title or possession of property transfers from a debtor to the debtor's estate after commencement of a bankruptcy proceeding, abandonment is considered a divestiture of a bankruptcy estate's interest in property. Upon abandoned, the property reverts to anyone with a possessory interest in the property such as the debtor, a lender, tenant, receiver or relevant taxing authority.  
	The burden of proof is initially on the trustee to establish that the property is burdensome or of inconsequential value or benefit to the estate.  In a chapter 7 case, the trustee generally only has to show that the property is burdensome or of inconsequential value because this serves the overriding purpose of a bankruptcy liquidation of expeditiously reducing the debtor's property to money for distribution to its creditors. However, in a chapter 11 proceeding where the goal is to restructure the finances of a business so that it may operate productively, provide jobs, pay its creditors and provide a return to its shareholders, there is some authority to suggest that a court must also determine that there is a "good business reason" or articulated business justification".  This is because abandonment is essentially a distribution of property to creditors since those creditors who hold security interests in the property will be able to foreclose upon it once it has been abandoned to the debtor.  Once the trustee meets this requirement, the burden of proof shifts to any party objecting to the abandonment and seeking to apply the exception to the abandonment power.  
	When a court is asked to review a contested application for abandonment, the court is to focus on the trustee's underlying reasons for seeking to abandon the property, and should affirm the request if it reflects a business judgment made in good faith, upon a reasonable basis and was made with the scope of the trustee's authority.   
	In 1986, the United States Supreme Court ruled in Midlantic National Bank vs. New Jersey Dept. of Environmental Protection that there was a narrow exception to the abandonment power. Under this limited exception, the Court said that a trustee may not abandon property if the abandonment would contravene state environmental laws reasonably designed to protect human health or safety from "imminent and identifiable harm "[emphasis added]. Where such conditions exist, the Court said a bankruptcy court could not authorize abandonment without formulating conditions that would adequately protect the public health and safety.  
	Thus, to restrict the trustee's abandonment power under Midlantic, the following four conditions must exist:
•	There must be an identified hazard that poses a risk of imminent and identifiable harm to the public health and safety;
•	Abandonment will violate a state statute or regulation;
•	The statute or regulation being violated must be reasonably designed to protect the public health and safety from imminent and identifiable harm; and
•	Compliance with the statute or regulation would not be so onerous as to interfere with the administration itself. 

	If the party objecting to abandonment cannot satisfy the first element (existence of an "imminent and identifiable harm"), a court is not required to address the other elements. Even where there is an "imminent and identifiable harm", Midlantic does not require that the trustee to assume full responsibility for a complete cleanup of the site. Instead, the trustee may still abandon the property if it complies with conditions formulated by a court that adequately protect public health and safety. 
	Likewise, where there is a violation but the conditions imposed by the law or regulation may be too onerous, when the law is not reasonably designed to protect public health or there may not be an imminent and identifiable harm, a court would be free to formulate conditions that fall short of complete compliance but that adequately protect public health and safety. 
	The Supreme Court said the exception was a narrow one and did not encompass a speculative or indeterminative future violation of such laws that may stem from the abandonment. Indeed, one federal appellate decision observed that the purpose of the exception was to protect public safety, not to "shield the state treasury."

A. Post-Midlantic Cases

Prior to Midlantic, trustees typically abandoned property when the cleanup costs exceeded the projected market value of the unpolluted asset. The initial cases decided after the Midlantic opinion broadly interpreted the decision and did not allow abandonment.
	In Re Stevens addressed the scope of the abandonment power in the context of a dispute over the priority that should be provided to response costs incurred by the state. The trustee argued that it could abandon drums stored in a trailer if it roped off the trailer and posted warning signs since these were the conditions that the state DEP required to conduct the auction of the debtor's personal property. However, the court said it did not have the power to make the quintessential legislative determination of what hazardous waste storage conditions adequately protected public health. Instead, the court said such appropriate conditions were those that strictly complied with environmental laws. Since leaving drums containing PCB-contaminated oil would violate state environmental laws, the court said it could not authorize the abandonment. There was no analysis if the drums posed an imminent and identifiable harm to public health and safety. Instead, the court said the facts of the case seemed indistinguishable from Midlantic (i.e., abandonment of PCB-contaminated waste oil). 
	While a Michigan bankruptcy court did not permit abandonment in In Re Peerless Plating Co.,  the court did acknowledge that a bankruptcy court could authorize abandonment of property without full compliance with environmental laws. The court interpreted Midlantic to required bankruptcy court to make three findings before it could authorize abandonment and concluded that none of the three conditions existed to allow abandonment. The three conditions were:
•	The environmental law was so onerous that it interfered with the bankruptcy adjudication-. The trustee had argued that compliance with CERCLA would deplete the assets of the estate. The court said that Midlantic did not provide any guidance on what conditions should be considered onerous but said it did not believe depletion of assets was such a condition since the purpose of chapter 7 was to liquidate the estate. 
•	The environmental law was reasonably designed to protect human health or safety from identified hazards- The court noted that the EPA officials did not present any evidence about the concentrations of cyanide gas, that EPA representatives emerged from the building without showing any ill effects, and that one of the trustee's witnesses had dipped his hand into a chemical solution to show it was too dilute to cause any harm. However, the court concluded that EPA's administrative decision on the imminence of harm was relevant but not controlling. Looking at the record in its entirety, the court concluded that there was the kind of immediate harm Congress intended to address when it enacted CERCLA. 
•	The violation caused by the abandonment could not be speculative or indeterminate- The court found the presence of the hazardous conditions was an ongoing violation. 	
	
	One of the first cases to suggest that a trustee did not have to fully comply with all state laws designed to protect public health and safety was In Re Wall Tube & Metal Products, Inc where a debtor shut down its facility and left drums, vats and tanks of hazardous wastes. Some of the drums were outside and overflowing due to accumulated rainfall and there was also evidence of dumping inside and outside the building. The focus of this opinion was what priority should be afforded to cleanup costs but there was some dicta discussing the scope of the abandonment power. The court concluded the site conditions posed a "continuing, potentially disastrous environmental health hazard" with no one clearly responsible for remedial action. The court said that under those circumstances, the chapter 7 trustee would not have been able to abandon the property under Midlantic. However, in a footnote, the court said there were a number of inquires a bankruptcy court could follow to determine a law's effect on the adjudication of a bankruptcy case. 	
	Since 1989, the vast majority of cases have narrowly interpreted the scope of the Midlantic holding. These post-Midlantic courts have allowed abandonment because the objecting party has failed to demonstrate that there was an imminent "imminent and identifiable harm" usually coupled with a lack of unencumbered funds in the estate. The vast preponderance of cases involve chapter 7 trustees. Two of the cases involve chapter 11 proceedings that were subsequently converted to liquidation proceedings.
These cases generally provide that the "imminent and identifiable harm" is different from the "imminent and substantial endangerment" standard of CERCLA section 106 and RCRA section 7003.  Under CERCLA section 106 and RCRA 7003 an endangerment can exist even if there is no present threat so long as there is a possibility or threat of harm to public health and safety from present conditions that may materialize in the future from present conditions. In contrasts, the case law interpreting Midlantic's "imminent and immediate harm" standard hold that there must be an actual, present identifiable risk of exposure to public health and safety and not some speculative or indeterminative future harm. Under this line of cases, the presence of hazardous substances at levels exceeding soil or groundwater cleanups standards will not necessarily constitute an "imminent and identifiable harm."         
	14 of the cases permitted abandonment without any conditions. In many of these cases, there may have been significant contamination but abandonment would not cause the conditions to worsen or there were insufficient unencumbered assets to pay for the cleanup or take the facility through closure. Soil or groundwater contamination or leaving wastewater treatment facilities full of plating baths or sludges has been held not to rise to the level of an imminent threat that would trigger the Midlantic exception to the abandonment power. 
	In 5 cases, the courts have imposed conditions on the abandonment such as providing the environmental agencies with access to the site to perform a response action, establishing a fund to pay for eliminating the imminent threat, allowing the property to be abandoned to the state or EPA, or allowing response costs to be afforded administrative expense priority.  
	Following are the circumstances where have courts allowed trustees to abandon property because the environmental conditions did not pose an imminent and immediate harm.

First Circuit 

	In Re Rancourt did not directly involve abandonment but is instructive on what may constitute an imminent danger. In this case, a cap consisting of 30 inches of gravel and 18 inches of riprap rock had been constructed at the western end of the property near a river. The cap had a berm to prevent the cap from sliding into the river. An interim cover of 30 to 48 inches of gravel was constructed in the middle of the site along with a drainage device to handle surface water runoff from the upper portion of the property. In the eastern part of the site, the interim gravel cap had apparently been eroded so that soil containing 5% to 25% asbestos was exposed. 
	EPA issued a 106 of CERCLA to the chapter 11 trustee who then filed a motion to expend funds for remediation contractors. The court initially directed the trustee to comply with the order but subsequently limited the scope of the trustee's obligations under the order. 	The court noted that the CERCLA phrase "imminent and substantial endangerment" applied to possible threats in the future. In contrast, the court said the Midlantic standard was premised on a "present identifiable harm." 
	Using the Midlantic standard, the court found that asbestos waste under the permanent cap in the western part of the site was stabilized and did not pose an imminent danger. For the middle cap, EPA was concerned that there might be a washout in the future that would expose the asbestos-contaminated soil. The court said the only evidence introduced about the risk posed by this possible future event was that asbestos could become airborne when it was dry or friable. The court said there was no analysis of how serious such an exposure would present to public health and safety. Because the soil could be quickly covered, the middle cap did not constitute an imminent harm. However, the court directed the trustee to monitor the condition of the caps and immediately repair any damage to the caps.
	For the eastern cap where the interim cap had been washed away and asbestos was exposed, the court authorized the trustee to expend funds to apply a layer of gravel sufficient to eliminate any imminent danger to the public. The court dismissed without prejudice the trustee's motion for authorization to spend $495,000 to comply with the EPA order. 
	Abandonment was not before the court in In re Paris but the court relied on Midlantic for guidance in approving a sale of contaminated property. In this case, the chapter 11 trustee filed a motion with the bankruptcy court to sell personal property located at a contaminated property owned by an affiliate of the debtor in South Otselic, New York for $475,000. The trustee proposed to deliver the proceeds of the sale to State Street Bank which held a mortgage and lien on the debtors' assets to secure a $10M loan. The NY Department of Environmental Conservation ("NYDEC") had asserted an unliquidated contingent claim estimated to be in excess of $1M for past and future cleanup costs, and objected to the sale. 
	The parties then entered into a settlement agreement where the trustee agreed to sell the real estate owned by the affiliate in South Otselic for $160K free and clear of liens and encumbrances. $75,000 of the proceeds was to be turned over to the NYDEC to pay for the removal of drums and other hazardous substances currently stored at the site. In addition, the seller agreed to cap or remove the septic tanks and to construct a self-contained sanitary wastewater treatment system. In exchange, NYDEC agreed to limit the liability of the bankruptcy estates to the lesser of the amount of its claims or 25% of the recovery it might obtain from the debtors' estates but did not relieve former officers and stockholders of liability. They former officers and shareholders objected on the grounds that the trustee had not complied with NY environmental laws as required by 28 U.S.C. 959(b).
	The court said it was clear that the property was burdensome and of inconsequential value and that the trustee was essentially using the sale as a means to transfer the property out of the estate. Nevertheless, the court found that the trustee lacked the funds to remediate the site and that by agreeing to use a portion of the proceeds for cleanup, the trustee had complied with the goal of NY environmental laws of developing and implementing a remedial program approved by the NYDEC. The court concluded the settlement agreement adequately protected the public interest and limited the liability of the bankruptcy estate to a reasonable portion of the assets that would be made available to it.  
	    
Second Circuit -

	In an early case interpreting Midlantic, a bankruptcy court declined to order a chapter 7 trustee to abandon contaminated property in In re 82 Milbar Blvd., Inc. Because the estate had no funds to bring the site into compliance, the court said it could not authorize abandonment since there would be no way for it formulate conditions to adequately protect the public. Instead, the court authorized a conveyance of a possessory interest in the property to EPA pursuant to Code section 725. The decision did not discuss the nature of the contamination but simply indicated that an electronics firm had contaminated the site. By conveying a possessory interest to EPA, though, the agency would be in a position to remediate the site and also provide protection to a successor trustee. 
	The bankruptcy court for the Southern District of New York addressed the abandonment power while determining if a landlord was entitled to administrative expense priority for its cleanup costs in In McCrory Corporation. In this case, the debtor had leased a warehouse and distribution facility in Jersey City, New Jersey. The lease required the debtor/tenant to comply with environmental laws. After filing for a chapter 11 petition for reorganization, the debtor rejected the lease. The landlord did not object and the bankruptcy court approved the lease rejection. 
	The landlord then retained an environmental consultant to perform a site assessment to comply with the New Jersey Environmental Cleanup Responsibility Act ("ECRA"). At the time of the lease rejection, the landlord believed the cleanup costs would be approximately $10K. The landlord subsequently re-leased the premises to another trucking operation and took a year to submit its cleanup plan for approval to the state.  Three years later, the cleanup costs had exceeded $100K and the landlord sought entry of an order granting its cleanup costs administrative expense priority under sections 503 and 507 of the Code.
	The court found that most courts allowing administrative expense priority for costs incurred post-petition arising out of pre-petition activities relied on a Midlantic analysis. The court reasoned that if the debtor could not abandon the property, the cleanup costs would be afforded administrative expense priority since they would be necessary costs of preserving the estate. 
	In its Midlantic analysis, the court first concluded that an imminent harm does not necessarily compel a debtor to assume all of the responsibility for a cleanup but simply comply with conditions formulated by a court that adequately protected public health and safety. 
	The court then concluded that ECRA did not necessarily address harm that was "imminent". The court noted that ECRA allowed cleanup plans to be deferred and that the major portion of the cleanup was not implemented until approximately one year after the debtor rejected the lease. Another factor the court said showed there was no imminent threat at the site was that after the landlord released the premises to another tenant who conducted substantially the same operation and site inspections showed discharges were continuing, the state never attempted to close the operation or expedite the cleanup. The court said that the Midlantic exception to the abandonment power applied when there was a serious health risk and not where the hazard "may await appropriate action".  

Third Circuit 
 
	In a string of cases, the district court of New Jersey (where the Midlantic case arose) has allowed abandonment even where the site posed a risk to the environment because the abandonment would not aggravate the situation.  In each case, the court concluded that the estate did not have the funds to secure the premises or to remove the wastes so the conditions would deteriorate regardless if the abandonment were permitted.	
	Indeed, on remand from the Supreme Court, the bankruptcy court in the Midlantic case approved the abandonment because there was no remaining funds available to cleanup the site.	
	In Re St. Lawrence Corporation,a chapter 7 trustee filed a motion to abandon commercial property. There was no documented evidence that there were any environmental conditions at the site that posed imminent harm but the NJDEP argued that a trustee could not abandon a site without complying with the state Industrial Site Recovery Act ("ISRA"). 
	The court said that Midlantic had created a narrow exception and that NJDEP had not met its burden of establishing that there was an imminent and identifiable harm that would be aggravated by the abandonment. The court also took judicial notice that environmental investigation would be costly and that it had an obligation to properly allocate funds when there was insufficient to pay all claims. 
	  NJDEP appealed the bankruptcy court's ruling but the district court affirmed the decision. The court agreed that NJDEP had the burden to establish there was an imminent harm and which provisions of ISRA were reasonably calculated to protect public health and safety. The court agreed with McCrory that ISRA was very broad and by its terms could address harm that did not rise to the level of an imminent harm.    
	A chapter 7 trustee moved to abandon a contaminated public water supply system in In Re Anthony Ferrante & Sons, Inc.  The debtor received a series of directives over a seven-year period from the NJDEP to correct numerous deficiencies that contributed to bacterial contamination of the system. The debtor ceased operating the system in 1986 when it filed a chapter 11 bankruptcy petition. In 1987, the debtor converted the bankruptcy case to a chapter 7 liquidation. One day later, NJDEP issued an administrative order to the debtor. 
	The trustee then filed a motion to abandon, claiming that it lacked the expertise, resources and legal responsibility to properly operate the system. The bankruptcy court approved the abandonment and the district court affirmed the ruling. The district court said that while bacterial contamination represented a health hazard, there was no evidence of an imminent threat. The court pointed out that the residents had been repeatedly warned to refrain from consuming the water and had the means to protect themselves, that NJDEP waited nearly eight years to enforce its prior directives. The court said that abandonment would not aggravate any danger to the public cease the public system had already ceased to operate.
	In State of NJ Department of Environmental Protection v. North American Products Acquisition Corp., a chapter 7 trustee sought to abandon property contaminated with TCE and other hazardous substances. The trustee liquidated the debtor's equipment, inventory and accounts receiver and turned over the proceeds to the bank. The only remaining asset was contaminated property which was encumbered with $2 million in liens. The property in an uncontaminated state was estimated to be worth $2.5 million but only $90,000 to $120,00 in its contaminated state. After the trustee was unable to sell the property, it filed a motion to abandon the property. The bankruptcy court approved the abandonment but the court required that trustee turn over all funds remaining to the estate after payment of administrative expenses and that the state's 506(c) claim against the secured creditors would be preserved. 
	The bankruptcy court did not take any testimony as to whether abandonment would create threat to human health and the environment. Instead, the court assumed that the site posed an imminent threat. The court noted that were no unencumbered assets to pay for site security or to remove sludge and drums of hazardous materials remaining at the site. Therefore, the court approved the abandonment due to the lack of funds available to the estate allowed the abandonment. 
	On appeal, the district court held that Midlantic allowed abandonment if a court determined that the abandonment would not aggravate the threat of harm to the public or create some additional harm. The court agreed that there was nothing in the record indicating that abandonment would aggravate the situation since there was no security or alarm system in place and also noted that the estate lacked unencumbered assets to pay for the removal of the wastes. However, because the bankruptcy court did not make specific findings of fact whether abandonment would create a peril or aggravate the danger to the public, the court reluctantly remanded the matter back to the bankruptcy court to take testimony on whether the abandonment would aggravate a harm to the public.
	Governmental inaction prompted a Pennsylvania bankruptcy court to permit abandonment in In re Purco, Inc. In that case, a liquidation trustee moved to abandon inventory consisting of 200 drums of hazardous materials that were stored on property formerly leased by the debtor.  The owner of the property where the inventory was left objected to abandonment because the debtor had not complied with the state Solid Waste Management Act.  Noting that the state DER had failed to initiate any enforcement action, the court found no showing "that the public health and safety are not adequately protected, nor is there a showing of a clear and imminent danger nor does there appear to be any great risk of harm or threat to the public safety, either immediate or in the foreseeable future" and approved the abandonment. The court also said that abandonment should also be permitted because the landlord who possessed the inventory of wastes left by the debtor tenant had the capability of performing whatever cleanup was required."
	While the abandonment power was not directly at issue in In Re Heldor Industries, Inc.  this case had interesting dicta on the scope of the abandonment power. Here, NJDEP objected to the distribution of the proceeds from the sale of substantially all of the assets of the DIP to the secured creditor. NJDEP argued that Midlantic required that environmental contamination be remediated before estate funds may be used for any other purpose.  
	Since this case really involved a turnover of collateral, the court ruled that Midlantic was not applicable. However, the court then went on to say that Midlantic created a narrow exception to the abandonment power for those rare cases where unconditional abandonment would aggravate serious existing dangers. The court went on to say that the NJDEP's interpretation that Midlantic required that estate funds had to first be devoted to environmental cleanup was plainly incorrect.
	Another case that tangentially touched the scope of the abandonment power was In re Corona Plastics, Inc. In this case, a chapter 11 debtor terminated its lease and auctioned off excess equipment. The bankruptcy court initially authorized the trustee to retain an environmental consultant to perform an ECRA investigation but the secured creditor refused to advance any funds or authorize the use of cash collateral to pay for the work. The secured creditor then brought a motion to require the debtor to turn over all of its collateral. The landlord objected to the transfer unless the trustee complied with ECRA.  
	The court held that because the matter involved a transfer of collateral and not the abandonment of contaminated property, Midlantic did not apply. Other factors that persuaded the court Midlantic did not require compliance with ECRA were that there was no known danger at the site and that the debtor did not own the property.  
	While the trustee eventually conceded that abandonment was not appropriate in In Re Guterl Special Steel Corporation, this case was instructive on what constituted imminent and identifiable harm. In this case, the chapter 11 trustee proposed to sell the personal equipment and located in Lockport, New York for approximately $9.5 million. The real property was subject to two mortgages that were guaranteed by the NY EDA. After the bankruptcy petition, the two banks assigned their security interests to the EDA. The prospective purchaser subsequently discovered that a significant portion of the site was contaminated with radioactive wastes associated with a predecessor of the debtor who had worked on the Manhattan Project. The purchaser initially refused to buy the property but then agreed to buy only the uncontaminated portion of the site for the same purchase price. The trustee then sold the remaining personal property for approximately $8.7 million and disbursed the proceeds to the NY EDA. After the sale, the estate had cash of approximately $1.4 million of which only $55K was not subject to the EDA lien. 
	After a consultant retained by the trustee determined that the site was more contaminated than previously believed, the trustee moved to abandon the property. The NYDEC objected to the abandonment because the property posed a danger to human health and safety. The agency indicated that over 200 drums of hazardous wastes were scattered throughout the property. Many of the drums were swollen, corroded or had been overturned by vandals and had leaked their contents onto the dirt floor. A 20,000-gallon AST containing hydrochloric acid was overflowing and its contents had pooled on the dirt floor. Another AST containing pickling acid had ruptured. Asbestos wrapping was hanging loosely from overhead piping. Radioactive levels exceeded state and federal guidelines. There were gaping holes in the roof, broken windows and signs that trespassers had access to the building. Copper wire and light fixtures had been removed, PCB-transformers had been vandalized and cat food cans were observed, suggesting that homeless people were inhabiting the facility. A residential neighborhood was located approximately ¼ mile from the site. 
	The EDA initially supported the abandonment motion but then reversed its position. Because there was evidence that people were being exposed to hazardous chemicals, the determined the site posed an imminent and identifiable harm. 
	  
 Fourth Circuit 

	The Court of Appeals for the Fourth Circuit upheld a bankruptcy court's ruling permitting a Chapter 11 trustee to abandon a fertilizer plant in In re Smith‑Douglas because the facility did not pose a threat of immediate harm to the public.  
	In this case, Borden, Inc. sold certain assets of its Smith-Douglas division including a fertilizer plant in Streator, Illinois to Garrett Acquisition Company in 1981 which renamed the business Smith-Douglas, Inc. In 1983, Smith-Douglas filed a chapter 11 reorganization petition and then leased its Streator facility to another company which ceased operating in 1985 and vacated the premises. Smith-Douglas determined it could not successfully reorganize and its secured creditor agreed to provide post-petition financing while the company liquated its assets. By 1986, the Streator facility was the only asset remaining in the estate and the debtor moved to abandon it after being unable to sell it. The state of Illinois and Borden argued that the debtor should be required to remediate the site. 
	The bankruptcy court found that the 4 lagoons had been operated without a wastewater permit and had contaminated soil and groundwater at the site. The court also found that a creek exceeded water quality standards for heavy metals and low pH, hazardous sludges were present in the lagoons and some of the tanks and there were numerous containers of hazardous wastes. The state had conducted several inspections of the site but had never taken any enforcement action. The court determined that while there were violations of environmental laws, the lack of enforcement action by the state indicated that there was no serious risk of harm. Moreover, there were no unencumbered assets to finance a cleanup.  As a result, the bankruptcy court approved the abandonment.  The district court affirmed the ruling but held that the financial condition of the debtor was irrelevant. 
	In upholding the abandonment, the Fourth Circuit disagreed with the district court on the relevance of the estate's financial condition. The appeals court said that environmental cleanups should be treated as administrative expenses that would be subordinate to secured claims. Where the estate had unencumbered assets, the court explained, stricter compliance with environmental laws was appropriate. However, where the estate lacked unencumbered assets and there was an absence of a serious public health risk, the appeals court held that an unconditional abandonment was appropriate.  
	In re FCX, Inc., a North Carolina farmers' purchasing and marketing cooperative owned two distribution centers where five tons of pesticides had been buried, dumped or poured.  The cooperative filed a Chapter 11 liquidation petition in 1985. 
	In 1986, a prospective purchaser of the Statesville pesticide blending plant performed a Phase II that detected the presence of pesticides in the soil and groundwater. One area of concern was a pit where off-spec pesticides were disposed. The pit was covered with a concrete slab and a warehouse. A second area of concern was outside a plant window where a highly soluble pesticide, Lindane, had been routinely spilled by employees over 20 years ago. 
	The debtor notified EPA under CERCLA and its disclosure statement for its reorganization plan discussed the environmental problems at the site. The statement indicated that the cleanup expenses would be considered costs of administration but the confirmed plan did not directly address payment of those expenses. Neither the state nor EPA received a copy of the disclosure statement nor did they file a proof of claim. The debtor estimated the value of the property at $700,000 and that cleanup costs would range between $900,000 to $1,300,000 the debtor sold one site to a third party and sought permission to abandon the other facility.  
	The site was proposed for listing on the NPL.  The debtor moved to abandon the site over the objection of the state and EPA.  The parties disputed the threat posed by the site. Well 3 had Lindane concentrations 14 times the drinking water standard but there was some evidence to suggest that the well was contaminated during installation. The three other wells did not detect any pesticides above drinking water standards. Even if the contamination levels detected in well 3 was correct, the debtor claimed the other wells showed the zone of contamination was extremely limited and that the site did not pose a risk to the city drinking water wells which were located two miles up gradient of the site. Some residences assumed to be using private wells were located half-mile downgradient from the property. 
	The bankruptcy court ruled that the key issue was not whether there was a violation of environmental laws but whether there was an immediate danger to the public. The court said that while the inordinate delay in the EPA's enforcement was evidence that the site did not pose an immediate threat to the public health, it was not conclusive. Accordingly, the court determined that the uncontrolled burial of pesticides and uncertainty about their current condition posed an immediate threat to the public. Though acknowledging that the environmental threat may not be manifested for several years, the court said the danger was imminent in the sense that there was a present and real possibility of public exposure to the pesticides. 
	The court allowed the abandonment of the property on the condition that the debtor set aside $250,000 to pay the estimated costs to remove the contamination presenting an immediate threat to the public.  The EPA and North Carolina had sought to have $2 million set aside, arguing that the debtor had other unencumbered assets. However, the court said the money was committed under the confirmed plan. The court ruled that only those costs reasonably required to remove the immediate threat would be afforded administrative status..   
	The bankruptcy court for the western district of West Virginia allowed a chapter 7 trustee to abandon the debtor's sawmill and wood treatment facility in In Re Doyle Lumber, Inc. While the debtor was operating as a debtor-in-possession, the state environmental agency had inspected the site and determined that the chromated copper arsenate ("CCA") wood treatment process was in compliance with state environmental laws. After the bankruptcy case was converted to a chapter 7 liquidation, the trustee filed an abandonment notice which indicated that the property had an assessed value of $500,000, secured obligations of $3.3 million and possible undetermined environmental problems associated with the CCA process. The state objected claiming that the debtor had failed to dispose of sludges and waste liquids in the CCA system and requested that the court order the trustee to properly close the hazardous waste management units. In addition, the state argued that the trustee also had to comply with the stormwater monitoring requirements of the wastewater permit that was issued to the debtor three months after the conversion to chapter 7. 
	The court found there was no evidence that the site posed any more of a risk than it did when the state inspected the facility. The court said the fact that the equipment had not yet been cleaned out, the sludges not yet been disposed and that an investigation of the soil or groundwater had not yet been completed did not constitute an immediate threat. If there had been soil or groundwater contamination, the court reasoned, it would have occurred prior to the trustee's appointment and when the state had conducted its inspection. The court acknowledged that appropriate soil or groundwater testing should be conducted but there was no evidence that the failure of the trustee to perform such activities would pose an immediate threat. Likewise, the fact that the trustee had not yet begun monitoring of the rainwater coming off the treatment pad also did not constitute an immediate threat since the state had allowed the facility to enforced that requirement earlier and no further treatment was taking place. In sum, the court found no evidence that conditions at the unused facility were regressing or worse than when it was actively used and did not in any way immediately threaten the public.  
	The court also found that the Fourth Circuit had ruled that the financial condition of the debtor is relevant to a Midlantic analysis. The court noted that there were few unencumbered assets for distribution to the creditors and there was no question that the cost of closing the CCA system would far exceed any funds available to the estate. Moreover, even if the state established that there was an immediate threat, the court said it had reservations whether the trustee was equipped to undertake the necessary work.
	In Re Southern International Company is an interesting case because of its analysis of when the imminent harm is to take place. In this case, a chapter 7 trustee abandoned a wood treatment facility that contained tanks holding copper arsenate solution. None of the creditors objected to the abandonment. Six weeks after the abandonment, a major rainfall caused the tanks to overflow and EPA was forced to take emergency action to cleanup the spill. The court found that the spill was a result of the storm and failure to maintain the equipment. The court said the fact that spill took place six weeks later was evidence that the danger of contamination was not imminent and merely speculative. Moreover, the debtor had been awarded possession of the site as a result of the abandonment and could have taken actions during the period to minimize the risk of a spill.

Fifth Circuit 

	A Texas bankruptcy court allowed abandonment of an oil refinery by a chapter 7 trustee in In Re Shore Co., Inc. In this case, the debtor had been issued an order prior to the bankruptcy proceeding requiring it to line earthen pits where contamination was seeping into the groundwater. The debtor did not comply with the order and the state did not take any actions to enforce the order over a four-year period. The trustee unsuccessfully tried to sell the refinery property and after a closure study estimated that the cost to remediate surface contamination alone would cost $30 million, the trustee moved to abandon the site. 
	EPA objected, arguing that the residual wastewater in the pits presented a risk of surface or groundwater contamination, there were numerous abandoned drums at the site containing acidic liquids, extensive piping containing hazardous substances, asbestos insulation throughout the structures, two large storage tanks containing sludges and that the property was not fenced. EPA testified that it could not present any evidence of specific harm resulting from these conditions but that it had not completed its site investigation.
	The court concluded that it was likely that there were violations of federal and state environmental laws but that the existence of violations or the mere presence of hazardous substances was not sufficient to limit the trustee's abandonment power. The court said there must be a showing that the violation constituted an imminent and identifiable harm and that neither the state nor EPA had made such a showing. The court placed great weight on the lack of enforcement activity by the state as well as that EPA admitted it had the ability to perform a cleanup but had not taken any action because it had not yet made the prerequisite finding that the site pose some degree of environmental danger. This suggested to the court that the site constituted more of an environmental concern than an immediate danger.
	The court also found that unlike in Midlantic, abandonment of the site would not aggravate the potential harm to the public since there was no fence or guard currently posted at the site and the property was located in an industrial area. Indeed, the court said that except for the trustee's periodic attempts to sell the property, it had been de facto abandoned for almost a decade.      
	The court did note that the estate had unencumbered funds but held there was no basis to provide administrative expense priority because the absence of state action, the fact that neither the state or EPA had expended funds for which they were seeking reimbursement and the lack of any proof of an imminent harm was evidence that the cleanup costs did not constitute an actual and necessary cost of preserving the estate as required by Code section 503(b).
	The district court for the northern district of Texas affirmed a ruling by a bankruptcy court allowing a chapter 7 trustee to abandon an industrial facility in In re Brio Refining. In this case, hazardous substances were detected at the site after the abandonment and the site was proposed for inclusion on the NPL. EPA ordered numerous PRPs to decontaminate the site.  After incurring $900,000 in removal costs and facing several additional million dollars in remedial cleanup costs, the PRPs asked the bankruptcy court for an order instructing the estate to reimburse the PRPs for their cleanup costs.  However, the bankruptcy court ruled that the PRPs incurred the response costs when the property was no longer part of the estate.  On appeal, a federal district court acknowledged that the property might presently be in violation of federal or state environmental laws, but nevertheless affirmed the bankruptcy court's jurisdiction to allow abandonment because the record before that court at the time abandonment was authorized failed to show that the property presented an imminent and identifiable risk of harm to the public.

B. Seventh Circuit -
	
	In Leavell v. Karnes, the bankruptcy court for the southern district of Illinois allowed a chapter 7 trustee to abandon oil-producing properties. The debtor objected to the application because they were being operated in violation of environmental laws. The debtor claimed that he would be exposed to fines and penalties if the trustee was allowed to abandon the property back to the debtor. The bankruptcy court approved the abandonment. 
	On appeal, the district court agreed with the line of cases narrowly interpreting Midlantic. The decision did not discuss the nature of the environmental violations but simply held that a court may allow abandonment if the site does not pose an immediate and identifiable harm to the public. However, because the bankruptcy court did not determine if the properties posed such a risk, the district court remanded the matter back to the bankruptcy court.
	In a July 2002 unreported case involving RCRA closure funds, a bankruptcy court for the Northern District of Illinois approved a settlement agreement allowing a trustee to abandon contaminated property located in Waukegan. In In re Outboard Marine Corporation et al,  the debtor initially filed for Chapter 11 reorganization but the case was converted to a chapter 7 in 2001 and a trustee appointed. The trustee filed a motion to abandon property known as "plant 2". The federal and Illinois EPA objected to the abandonment and in May 2002, both agencies filed an adversary proceeding seeking injunctive relief under various environmental laws. 
	Under the settlement agreement, the trustee agreed to remove drums, drain tanks and PCB-contaminated hydraulic fluids from various equipment, pump and dispose of liquids in a cistern, and remove/dispose of batteries and capacitors. The trustee was also required to pay the federal EPA $240K that the agency would use towards cleaning and removing piping, sewers, contaminated floors and the eastern UST area. The state EPA was allowed to draw upon a $281,489 irrevocable standby letter of credit ("LOC") that was posted to comply with RCRA Closure financial assurance requirements. The proceeds from the LOC were to be dedicated towards RCRA closure. Finally, the trustee granted both agencies a lien on the property for all costs they incurred to remediate the site in accordance with environmental laws. Any value the agencies received from the lien would reduce any claims they have involving the cleanup at the site.  
	It is important to point out that the settlement specifically states that it is not a covenant not to sue or a release of liability. Both agencies reserved their rights to contend that the injunctive relief sought in the adversary proceeding survives the abandonment. The trustee reserved all its rights to contend that it had no liability for injunctive relief after abandonment. 	
	An unreported case from the bankruptcy court for the Northern District of Illinois involved an abandonment motion filed by a DIP. In In re Naco the DIP was authorized to conduct an auction sale of substantially all of its operating assets on an ongoing basis. After entering into an asset purchaser agreement with TCF Railco Acquisition ("TCF Transaction"), the DIP obtained a commitment for a $20 million post-petition credit facility (the "DIP Facility") from a group of lenders. The DIP facility was to be used to by the DIP to operate its business in the ordinary course and to close the TCF transaction.  The DIP Facility would terminate after the TCF Transaction was completed. 
	No bids have been received for two facilities located in Ashland and Superior, Wisconsin and the DIP moved to abandon them. The DIP indicated that it had ceased operations at both of those facilities and had vacated them. The Ashland property had a market value of $1.5 million and the Superior property was appraised at $1.05 million. The properties was encumbered by a mortgage of at least of $3.1M. Thus, the DIP had no equity in either property. 
	The DIP also said that since it had sold its operating assets, it would be seeking to effectuate a reorganization plan or otherwise use the properties for the benefit of the estate. As a result, the properties did not present any present or future use or value to the debtor or its estate. In addition, the DIP said it continued to accrue property tax liability and other expenses that created an increasing burden on the estate. The DIP also indicated that it did not believe there were any conditions posing an "imminent and identifiable harm" to public health.  
	Initially, the judge denied the abandonment motion without prejudice on the grounds that such relief was not available to a DIP. In its motion for reconsideration, the DIP indicated that the court should not be concerned about the status of the properties after abandonment because the properties could be abandoned to any party with a possessory interest in them such as a secured lender. The DIP said the secured lender could assert its rights under state law and foreclose on the property. If the secured creditor failed to exercise such rights, the DIP said that the relevant taxing authorities could conduct a tax sale or otherwise proceed against the properties. If they did not take any action, the DIP said the properties would eventually escheat to the state. Thus, concurrent with its motion for reconsideration to abandon the property, the DIP filed a motion to modify the automatic stay to remove the properties from its protections.  
	In its motion objecting to the abandonment, EPA said it had learned that the mortgagee had documents in its possession describing the environmental conditions at the properties but that the bank had refused to provide them to EPA. Thus, EPA said the debtor had not demonstrated that it complied with the requirements of Midlantic because, inter alia, it had not demonstrated that abandonment would not result in a release of hazardous substances, to the degree that environmental hazards exist at the properties the debtor had not formulated conditions adequate to protect public health and safety, that the motion should be continued until the debtor could either demonstrate there are environmental hazards on the property or formulate conditions to address such hazards and that EPA should be given a right of access to investigate the property.
	On reconsideration, the court vacated its earlier order disallowing the abandonment and continued the hearing to allow EPA to develop evidence demonstrating that there was an imminent and identifiable harm. 	
	In re H.F. Radandt, Inc., a chapter 7 trustee conducted an auction of the real and personal property of the debtor. One parcel was sold for $57,000 but was contingent on the estate removing USTs and conducting satisfactory Phase I and Phase II investigations. During the UST removal, contamination was discovered. The trustee estimated that the cleanup would cost between $50,000 to $100,000 and that only a portion of those costs would be eligible for reimbursement from the state UST trust fund. 
	The state did not object to the abandonment but requested administrative priority for its expenses which exceeded the sales price of the property. The court found that the cleanup costs would likely exceed the contingent sales price and exhaust the unencumbered assets of the state. Since the state had failed to take any action and had admitted that while the site must be remediated, the harm posed was not imminent in the sense of an emergency, the court said it was not required under Midlantic to fashion a remedy using unencumbered assets of the estate to address the contamination.
	The district court for the eastern district of Michigan affirmed a ruling allowing a chapter 7 trustee to abandon contaminated property in Matter of MCI, Inc. In this case, the debtor operated a paint and rust stripping business as well as a copper plating operation. After the trustee proposed to abandon the property in 1989, both the state and EPA objected on the grounds that a preliminary investigation revealed hazardous substances on the site. The court denied the trustee's application and allowed the state to have access to the site. 
	One year later, EPA issued a CERCLA 106 order requiring the debtor to cleanup contamination the site because it constituted an imminent and substantial endangerment. When the debtor failed to comply with the order, EPA removed numerous drums of hazardous materials at a cost of $905,973. When the trustee again proposed to abandon the property a year and half later, the debtor objected but not the state or EPA though EPA argued that it was entitled to reimbursement of its costs. The bankruptcy court concluded that while there were elevated levels of petroleum in the surface soils, there was no evidence that the contamination posed an imminent harm. The court also found that the trustee had no unencumbered assets to pay for the cleanup. Accordingly, the court ordered that the property to be abandoned to the state and EPA. The court said the agencies should remediate the site and then sell it to recover their costs. The court also found that the property was now worthless because of the costs EPA had incurred.
	The district court affirmed the bankruptcy court because there was no evidence that the violations or remaining soil contamination posed an imminent threat of harm to the public. Moreover, because EPA and the state were awarded possession of the property, the court said public health and safety was adequately protected since those agencies were obligated to remediate the site. 
	A Wisconsin bankruptcy court approved a conditional abandonment in In re Better-Brite Plating, Inc.	In this case, an electroplating business filed a chapter 11 bankruptcy petition in September 1985. The debtor had total liabilities of approximately $800,000 including a $260,000 loan secured by a security interest in all of the debtor's real and personal property. The property was contaminated with zinc and copper from the plating shops and had failed to install a pretreatment system. Prior to the bankruptcy proceeding, the state DNR issued a cease and desist order. 
	The bankruptcy court allowed the debtor to stay in business with a new manager and use the cash collateral of the lender. The debtor shut down its own chrome shop and leased another shop but that shop was also shut down after failing to install a pretreatment system. A pretreatment was implemented at the zinc shop but that failed to work properly. 
	During the chapter 11 proceeding, the debtor accumulated numerous drums of hazardous wastes at both facilities. In September 1986, EPA performed a removal action at the zinc and chrome shops.    
	With all of the debtor's assets subject to liens and only several hundred dollars in cash, the case was converted to chapter 7. The property had a negative value because of the contamination and could not be sold. However, the new manager agreed to purchase the personal property of the debtor and lease the two facilities from the trustee to provide an income stream to pay off the mortgage and fund the cleanup. However, the new company was unsuccessful. Faced with an estimated $400,000 cleanup cost and only $5,000 of unencumbered assets, the trustee moved to abandon. The state DNR and the landlord for the chrome shop objected, arguing that the trustee had an obligation under 28 USC 959(b) to comply with state cleanup laws and should be allowed to use the bank's collateral to fund the cleanup under 506(c). 
	The court denied the landlord's claim because there was no evidence that the leased property had been contaminated by the debtor and there was no evidence that the costs were incurred to preserve the debtor's personal property.	
	The court permitted the abandonment because the unencumbered assets were insufficient to remediate the site and because there was no evidence that the site posed an imminent harm or danger to the public since EPA had been taking response actions for three years. The court was also influenced by the fact that EPA had not objected to the abandonment but, instead, simply requested access to the site to continue to perform the response actions and administrative expense priority.
	The court also ruled that because the bank said it would not foreclose on the property, it was in essence an unsecured creditor. In addition, it would benefit from any cleanup since the property was currently unmarketable. Accordingly, the court approved abandonment on condition that EPA and DNR be provided access to the site and that their costs be afforded administrative priority over secured creditors.

Eighth Circuit -
	
	The bankruptcy court for the District of Minnesota approved the motion filed by a chapter 7 trustee to abandon to abandon 14 deteriorating barrels of hazardous wastes in In re Franklin Signal Corp. because the removal cost exceeded the value of the estate's unencumbered assets.  The estate had only $10,000 in unencumbered assets and it was estimated that the cost to remove the drums would exceed $20,000 in addition to the $17,000 in administrative costs. 
	This court was one of the first to formulate the conditions when a court may authorize abandonment and has been relied upon by many subsequent decisions. The court held that Midlantic decision did not bar a trustee from abandoning property but simply required that the trustee take adequate precautionary measures to ensure that there would be no imminent harm to the public as a result of the abandonment.  The court also stated that bankruptcy courts could not authorize abandonment without formulating conditions to adequately protect the public.  In developing these conditions, a court must take into account the following factors:

	(1)	the imminence of danger to the public health and safety,
	(2)	the extent of probable harm,
	(3)	the amount and type of hazards,
	(4)	the cost of bringing the property into compliance; and
	(5)	the amount and type of funds available for clean up.

	The court suggested that under Midlantic, trustees had a duty to take minimal steps to protect the public until abandonment was authorized.  While these measures would depend on the facts of each case, the court believed that, at a minimum, the trustee would have to conduct an environmental inspection to identify the hazards and to inform the appropriate governmental agencies.
	In this case, the trustee had already conducted an investigation and reported the findings to the Wisconsin Department of Natural Resources.  Since the agency had not acted after the trustee notified it about the presence of the barrels and since there was no evidence that the drums posed an immediate threat to public safety, the court concluded that no further conditions on the abandonment were necessary.  The matter was, in the court's opinion, "not one of public safety but one of money; who must bear the cost of cleanup."

Ninth Circuit

	In re Circle K Corporation  is a lease rejection case but is useful because it involves a chapter 11 debtor who had completed its temporary closure obligations for USTs but had not yet complied with the permanent tank closure requirements. In this case, the debtor proposed to reject numerous convenience store leases containing USTs.  The debtor had drained the tanks, locked fill pipes and capped the lines and manways. There was evidence that many tanks had been leaking and that some sites had soil and groundwater contamination. Many landlords and the state of Texas objected to the motion to reject the leases on the grounds that the debtor was obligated to permanently close the tanks and were essentially trying to abandon the tanks in contravention of Midlantic. The court said that not ever leaky tank posed an "imminent and identifiable harm" especially when the tanks were empty and capped. Moreover, the court noted that the property would not be abandoned to an insolvent chapter 7 debtor as in Midlantic but to landlords. The court said the landlords and the state governments would be free to cleanup the sites and file claims. The court also observed that the states would also be free to use their injunctive power under the police power exception of the automatic stay. The court also pointed out that state environmental officials had participated in the proceeding and not used their authority under the police power exception. The court indicated that if the tanks had posed an imminent threat, the state officials would have exercised their authority. The court concluded that the debtor had complied with the minimal requirements for closing the tanks and that Midlantic did not require it to comply with "every real or imagined environmental situation" before it could reject the leases.     

Tenth Circuit 

	The federal Court of Appeals for the Tenth Circuit allowed a trustee in a chapter 7 liquidation to abandon three gasoline stations in In Re L.F. Jennings Oil Co In this case, the trustee had proposed to sell the three New Mexico properties. Prior to the sale, the trustee had collected soil samples that revealed petroleum contamination in excess of 100 parts per million. The contamination was reported to the state Environmental Department ("NMED") and underground storage tanks were removed from two of the sites. The NMED then issued NFA letters. Following the cleanup, the trustee sought to abandon the properties because it had no equity in them. NMED did not object to the abandonment motion. The bankruptcy court found the properties did not pose an immediate threat to public health and approved the abandonment. After the properties were deeded to a bona fide third party purchaser, the NMED filed a motion to quash the abandonment which was denied by the district court. 
	On appeal, the Tenth Circuit found that the motion for the two sold properties was moot. For the remaining property, the court found it did not pose an immediate threat at the time of abandonment. The court did not discuss specific conditions of the sites but simply said the sites were not on the state's list of contaminated sites, the NMED expert failed to provide any evidence that a present threat existed and that the trustee's only violation of environmental laws at the time of abandonment was failure to timely file reports. 
	A chapter 11 trustee was allowed to abandon a former refinery In Re Oklahoma Refinery Corp.In this case, the estate had secured claims in excess of $40 million and no unencumbered assets. Unsecured claims were approximately $8 million and the trustee estimated the total assets had a value of $4 million. With the consent of the secured creditors, the debtor used cash collateral to install 68 groundwater monitoring and recovery wells, drain tanks, remove tank bottom sludges, remove 2000 barrels from open disposal pits, and maintain fencing at a cost of $275,000. 
	The investigation confirmed that the heavy metals and other hazardous substances had leached into the groundwater that was used as a drinking water supply for a nearby town and also into a local creek that was also used for drinking water. It appeared that the refinery was downgradient of the water supply wells and there was no evidence that any drinking wells were impacted. A toxicologist for the state testified that something "bad" would eventually happen. All expert witnesses agreed that if imminent harm was defined as harm that was "immediate and menacing", there was no imminent harm to the public health and safety. 
	The trustee concluded that the property was worth $100,000 and that an additional cleanup would cost $2.5 million. As a result, the trustee filed a motion to abandon the property under a liquating plan. 
	The state argued abandonment would violate state laws because site was discharging contaminants into a creek without a permit, that the pollution constituted a continuing nuisance and the company had failed to prepare a closure plan and establish financial assurances.  
	The court concluded there was no imminent harm which the court defined as immediate and menacing harm to the public or abandonment would not aggravate the existing situation, create a genuine emergency or intensify the pollution. Moreover, the company had complied with the consent decrees except for submission of a closure plan. The court said the company had submitted a plan but the NMED had rejected it for technical reasons. 
	The court said that there would be no difference between denying and allowing abandonment because there were insufficient funds to finance the closure and post-closure plan and the secured creditors did not consent to using cash collateral to satisfy any further requirements. Without such financial assurance, the closure plan could not be approved. The court said to require strict compliance with environmental law would create a bankruptcy case in perpetuity. The court said the trustee had done what is reasonable under the circumstances. The court also said that to pre-empt the administration of the estate would derogate the spirit and purpose of the bankruptcy code. The court concluded that the state environmental laws were not unreasonable but could not be reconciled with the bankruptcy code to satisfy the strict compliance sought by the state.

Eleventh Circuit 

	A bankruptcy court for the middle district allowed a chapter 7 to abandon 110 underground storage tanks located on 45 sites in In Re Sheffield Oil Co., Inc. The trustee concluded it was not cost-effective for the estate to remove the tanks. Some of the tanks were located on property owned by a board of education and were adjacent to public schools. Some of the tanks were over 20 years old. There was evidence that the debtor had not paid registration fees for the tanks, had ceased maintaining them and had not tested the tanks. The state representative testified that she was not aware of any environmental problems except for one tank that had been permanently closed but the nature of the problem was unknown. The landowners asked the court to require the trustee to use unencumbered funds to determine if environmental violations existed. The court said the Midlantic exception does not require a trustee to expend funds to investigate the possibility of environmental violations where none are known to exist. 
	An Alabama bankruptcy court granted a conditional abandonment in In Re Mowbray Engineering Co, Inc. This opinion was devoid of facts. It simply said that the trustee sought to abandon real estate and equipment used in connection with a former manufacturing facility, and that the property was said to be a hazard to human health and safety because of its contamination. The trustee had been unable to sell the property and told the court there would be no equity in the property even after EPA remediated it. EPA did not object to the abandonment but instead requested an order providing it access and to be granted a priority lien over the secured creditors.
	The court found the estate had insufficient funds to remediate the site and that it was clear that the property could not be sold until it was cleaned up. Since the agency stood in the shoes of the trustee, the court awarded EPA administrative expense priority under 503(b) and approved the abandonment on the condition that any sales proceeds in excess of the response costs were to be turned over to the trustee and administered as assets of the estate. 

L. District of Columbia-

The bankruptcy court for the District Columbia authorized a chapter 7 trustee to abandon a 40 unit apartment building with numerous housing code violations including deteriorated lead-based paint in In re Vey Rey Properties, Inc. this case, an involuntary chapter 7 petitioned was filed against the debtors following a $2.5 million jury verdict for lead-based paint poisoning. The debtor estimated the building was valued between $150,000 and $250,000. In authorizing the abandonment, the court said that Midlantic involved extreme circumstances where the trustee proposed to abandon to an insolvent debtor property containing unprotected lagoons of flammable toxic waste. While the court acknowledged that lead paint did present a serious threat, it said it did not believe the circumstances warranted applying the Midlantic exceptions. In addition, the court said it knew of no case where the Midlantic exception had been applied to violations of housing regulations. Moreover, the court said that unlike Midlantic where abandonment would have aggravated the situation, abandonment might actually improve the likelihood of compliance since a lienholder or purchaser should have the funds necessary to bring the building into compliance with the housing regulations.

B. Recommendations for Pursuing an Abandonment Strategy

While there are no reported cases authorizing abandonment of contaminated property by a chapter 11 DIP, the factors discussed by the courts such as the lack of an imminent harm, the unavailability of unencumbered assets and the absence of government enforcement action are equally applicable to a DIP and would not preclude a court from authorizing a DIP to abandon contaminated property. 
	However, a DIP would likely face a heavy burden to refute government claims of an "imminent and identifiable risk". These cases are fact intensive and a court may want to hold an evidentiary hearing involving expert testimony to evaluate the nature of the threat at the sites. Moreover, the filing of an abandonment motion could prompt state and federal agencies to file their own adversary proceedings for injunctive relief that would have the effect of accelerating the commencement and pace of the cleanups.    
	A court inclined to approve abandonment would likely want to formulate conditions to the abandonment to ensure protection public health and safety. One of the conditions could be allowing the state or federal government to draw on the financial assurance as was done in the Outboard Marine bankruptcy case. The rationale under this approach would be similar to that presented in the Circle K case where the DIP complied with the temporary closure requirements to eliminate any imminent danger and the permanent closure was to be accomplished by either the property owners or the states who would then be authorized to file general unsecured claims. 
	The other viable strategy would be to establish a trust to whom the properties would be abandoned. This approach would allow the bankruptcy estate to dispose of contaminated property so that the reorganized company does not take title to the property. It also provides a court that may be hesitant to authorize abandonment with an opportunity to formulate condition in the form of a funding source that can address environmental conditions at a site that might rise to the level of an imminent and identifiable harm. Obviously, it is possible the government may not be satisfied with the adequacy of the funding. However, the burden would be on the government to establish that the funding source would not be adequate to protect public health and safety
	It would seem that the best strategy to follow might be to create an entity such as a trust that would have the responsibility if managing any imminent harms at these sites. National Gypsum used such an approach for the Salford Quarry in Pennsylvania and for the Tex Tin site in Texas. While these two trust settlements did not involve abandoned proceedings, they are instructive on how contaminated property may be disposed by a DIP. The trust approach can also help cutoff any potential successor liability issues as well.
	In the National Gypsum case, the company was the owner of the Salford Quarry in Pennsylvania and another property in Millington, New Jersey known as the "Asbestos Dump Site". According to the EPA listing for the Salford Quarry, the three-acre site is an abandoned stone quarry that had been purchased by America Olean Tile Company in 1962 for waste disposal and used until 1980.  In 1981, two 10,000-gallon tanks containing boron and fuel oil were discovered buried in the former landfill. High concentrations of boron were discovered in residential wells near the site and EPA connected them to a public water system. Other contaminants included arsenic, asbestos, cyanide and various solvents connected with the manufacture of tiles.   
	The company had entered into an administrative order on consent in 1985 to perform a Remedial Investigation/Feasibility Study ("RI/FS") at the Asbestos Dump Site and a consent decree in 1988 to perform a RI/FS at the Salford Quarry.  EPA filed a proof of claim for cleanup costs incurred under CERCLA in April 1991  and an application for reimbursement of administrative expenses in May 1992. In July 1992, the bankruptcy court entered into an Order of Estimation. In July 1992, EPA and the company entered into a settlement agreement to compromise the agency's general unsecured claims and administrative expense claims which was amended in November 1992. 
	Under the settlement agreement, EPA would receive an administrative claim of $2 million. In addition, a general unsecured claim of $10 million claim was allowed for the Salford Quarry Trust Escrow.  A custodial trust was established for the Salford Quarry (the "Trust") whereby the $10 million and any securities to be distributed to the United States under its general unsecured claims would be transferred to the Salford Quarry Trust Escrow (the "Escrow"). 
	In addition, EPA agreed not to object to a transfer of the property and was named the beneficiary of the trust.  The duties of the trustee included holding title to the real property, regularly inspection and maintaining the capped areas of the quarry, periodically sampling groundwater monitoring wells, limiting access to the site, maintaining insurance, making requirement payments and submitting necessary applications for property tax abatements. 
	The settlement agreement provided that 50% of the funds deposited into the Trust Maintenance Reserve Fund Account and the other 50% was to be deposited into a Trust Response Fund Account. The latter account was to be used to disburse funds annually to EPA for any unreimbursed response costs from the prior year.  The annual payments from the Trust Response Account was to cease when all assets of the Escrow with the exception of the Trust Maintenance Reserve Fund have been paid or 15 years from the effective date, whichever was sooner. When the Salford Quarry Trust ceases to exist, all remaining assets of the Escrow would be transferred to the United States. 
	The settlement agreement provided that once the trust was funded, EPA would release the Debtors and New Gypsum from any liability for the Salford Quarry as well as OU 2 and OU3 of the Asbestos Dump Site, and EPA's claims would be discharged pursuant to the confirmation plan. In addition, the debtors and New Gypsum would receive contribution protection. 
	According to the most current information provided by EPA for the Salford Quarry site, EPA has received $1.25 million to fund the RI/FS that will begin this year. The focus of the RI/FS will be to determine the extent of the boron and TCE contamination in the groundwater and determine if any further remediation is necessary beyond the initial cleanup performed by EPA and the Pennsylvania DEP. According to the listing for this site, the initial response activities consisted of installing a soil cover and implementing a groundwater sampling program.  
	The Tex Tin case involved a 130-acre inactive tin and copper smelter site with slag piles and ponds containing acidic wastes. The site also had low-level radioactive wastes. 
	Tex Tin entities filed a chapter 11 reorganization petition and EPA filed proofs of claims. Under a consent decree entered into between EPA and the Tex Tin entities, the debtor was to pay the trustee of the Tex Tin Custodial Trust $300K as an administrative expense priority claim. EPA was also to receive $50,000 as an administrative expense claim as well as an general unsecured claim of $26, 964,400 pursuant to a confirmation plan allowing for such claims to be paid at 1% of their value. In addition, the Natural Resources Trustee would received a general unsecured claim of $10,278,100 and the state environmental agency $12, 757,500 under the same 1% valuation.   The real property was to be quitclaimed to the Tex Tin Trust and any insurance policies were to be assigned to EPA.  
	In exchange, the Tex Tin entities would receive covenants not to sue under CERCLA, RCRA, Texas environmental laws and common law as well as contribution protection under CERCLA. The government was to implement the remedy. The trustee did not have any responsibility for the cleanup but was just to maintain the site including complying with any Clean Water discharge permits and regulations regarding storage of radioactive materials. The trustee was also required to allow materials having salvage or recycling value to be removed from the site to avoid the incurrence of disposal costs.
	The trust agreement provided that once the site was cleaned up, it would be sold and the proceeds delivered to EPA. Such sale would be subject to institutional controls set forth in the Record of Decision selecting the cleanup remedy. The institutional controls included a deed notice identifying on-site landfills and caps, prohibiting disturbance of those areas, prohibiting use of the groundwater, and other appropriate land use restrictions. 
	 If the property could not be sold within three years of EPA issuing a Certificate of Completion for OU1, EPA and Texas would evaluate alternatives for either continuing the trust or disposing of the property

© 2002 Lawrence Schnapf