Chapter 13 debtor may not avoid cleanup order

A Chapter 13 debtor had previously owned a gas station. After the New York State Department of Environmental Conservation (NYSDEC) issued a notice of violation involving failing to comply with underground storage tanks (USTs) regulations, the debtor filed its chapter 13 petition. In its Statement of Financial Affairs, the debtor disclaimed knowledge of environmental issues despite having received  the notice of violation. As a result, the NYSDEC was not included in list of creditors or any schedules of liabilities.. Because the agency was not aware of the bankruptcy proceeding, it did not file a claim or otherwise appear in the bankruptcy case.

A Chapter 13 plan was then approved by the court. The plan provided that the debtors would agree to make monthly payments to the chapter 13 trustee and that the debtor would surrender its property to the county for unpaid taxes. One year after the chapter 13 plan had been confirmed, NYSDEC filed motion to compel compliance under 28 under U.S.C. 959(b) which imposes obligations on trustee to comply with laws.

Because of the potential environmental liability associated with the property, the county did not take title to property. Because the plan had no provision for trustee to retain property, title revested to debtor by operation of law. The Court said the debtor fell within the scope of the parties subject to 959(b). Thus, the court ordered that any future surrender of the property would be conditioned on the debtor ensuring that steps are taken to comply with the NYSDEC Notice of Violation.

On NYSDEC’s motion to compel compliance, the court held that 959(b) did not create a remedy for failure to comply with environmental laws. Therefore, the court said it could not grant the relief sought by the NYSDEC. However, the court said that if debtor failed to comply with environmental laws, NYSDEC was free to either commence enforcement proceedings or move to dismiss the bankruptcy proceeding.

In re Wade Gollnitz, 2011 Bankr. LEXIS 3728 (W.D.N.Y. 9/28/11)