District Court Rules Injunctive Order not Dischargeable Claim

New Mexico had issued an order under its Water Quality Act to abate groundwater contamination eminating from septic field and lagoon on debtor’s property. The debtor argued that since the state was essentially requiring it to pay for the cleanup, the order should be considered a claim that could be discharged under the Bankruptcy Code. The state argued that the order was exempt as a regulatory action.

Relying on the Second Circuit’s LTV decision (In Re Chatageauy) and the Seventh Circuit’s Apex Opinion in In , United States Bankruptcy Court for the Southern District of New York ruled that the order was not a claim because NM had no right of payment under the state statute.

On appeal, debtor argued that NM had the ability to obtain payment under CERCLA and other laws, and therefore should be barred from enforcing the order. However, the District Court for the Southern District of New York said the analysis should be limited to the statute under which the state chose to issue the order, not other hypothetical remedies that might be available.

In re Mark IV Industries, 2011 U.S.Dist. LEXIS 110595 (S.D.N.Y. 9/28/11)