1992-08-13_GENERAL DOCUMENTS - C1981017 (2)

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The priority of state or federal environmental claims has been a more difficult issue for the courts. The Bankruptcy Code does not provide any statutory priority for environmental claims. Nonetheless, most courts which have considered the question have treated cleanup claims as administrative expense priorities. The issue is closely related to the foregoing discussion regarding the exercise of state regulatory powers. For example, by requiring the debtor in Penn Terra, supra, to expend funds to carry out a cleanup order, the Third Circuit in effect treated the debtor's environmental obligations as an ongoing administrative expense. The impact of cleanup enforcement on the bankruptcy priority scheme was discussed more explicitly in In re Security Gas & Oil, Inc., 70 Bankr. 786 (Bankr. N.D.Cal. 1987), a case involving state action to force a bankruptcy estate to reclaim abandoned oil wells. The court noted: Unless state law creates a statutory lien in favor of the state to secure enforcement of environmental clean- up orders, the state is only a general unsecured creditor.... Enforcement of a clean -up order during the pendency of a case in effect results in full satisfaction of that obligation. Because in most cases unsecured creditors are not paid in full, allowing enforcement of a clean -up order elevates the state above other unsecured creditors. Such a result distorts the Congressionally created priority scheme and harms other unsecured creditors. Compare In re Stevens, 68 Bankr. 774 (D.Me. 1987) ( "[I]n some circumstances the priorities of the Bankruptcy Code must give way to laws designed to protect the public health and safety. ") Generally, for an obligation to be treated as an administrative expense, the obligation must arise in the post - petition operation of the debtor's business. In the case of Resources, the reclamation plan and the mine activity which gave rise to the need for reclamation both occurred pre - petition. The mine will not be operated post - petition. These considerations suggest that any reclamation deficiency remaining after application of Resources' bond should be a pre - petition, general unsecured claim. On the other hand, Resources' obligation to reclaim its mined property could be viewed as an ongoing obligation which carries over into the administration of Resources' bankruptcy estate. 28 U.S.C. § 959(b) requires bankruptcy trustees and debtors in possession to "manage and operate the property in his possession... according to the requirements of the valid laws of the State in which such property is situated, in the same manner -5-