Free Reply Brief - District Court of Delaware - Delaware

Case 1:05-cv-00005-JJF

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UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE IN RE: THE IT GROUP, INC., et al., Debtors. ) ) ) ) ) )

Chapter 11 Case No. 02-10118 (MFW) (Jointly Administered)

STATE OF NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellant, v. THE IT LITIGATION TRUST, Successor to the Debtors. Appellee.

) ) ) ) ) ) ) ) ) ) ) )

CIVIL ACTION NO. 05-CV-005

REPLY BRIEF OF APPELLANT STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION PETER C. HARVEY ATTORNEY GENERAL OF NEW JERSEY R.J. Hughes Justice Complex P.O. Box 093 Trenton, New Jersey 08625 (609) 984-7147 STUART DROWOS, Bar ID #427 Local Counsel for NJDEP Delaware Division of Revenue Carvel Building, 8th Floor 820 N. French Street Wilmington, DE 09801

Kathrine M. Hunt Deputy Attorney General Admitted Pro Hac Vice On the Brief

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TABLE OF CONTENTS Argument PAGE

DEP DOES NOT HAVE A CLAIM WITHIN THE MEANING OF THE BANKRUPTCY CODE OR THE PLAN INJUNCTION..........................1 A. The Appellee Has an Ongoing Regulatory Obligation to Correct Continuing Harm to the Environment as a Result of the Loss of 19 Acres of Freshwater Wetlands.....................1 B. The DEP Does Not Have a Right to Payment From the Appellee...............................3 CASES CITED Hagaman v. State of New Jersey, 151 B.R. 696 (D.N.J. 1993), 1993 U.S. Dist. Lexis 21422.......7 In re Chateaugay, 944 F.2d 997, (2d Cir. 1991)...........................................7 Matter of Commonwealth Oil Refining Co., 805 F.2d 1175,(5th Cir. 1986), cert. denied, 483 U.S. 1005 (1997)........................................... 6,7 Ohio v. Kovacs, 469 U.S. 274 (1985)............................ 3 Penn Terra Ltd. v. Dept. of Environmental Resources, 733 F.2d 267 (3d Cir. 1984)...................................4 Torwico Electronics, Inc. v. State of New Jersey, 8 F.3d 146 (3d Cir. 1993)..................................6, 7 United States v. Production Plated Plastics, Inc., 762 F.Supp. 722 (W.D.Mich. 1991), aff'd 955 F.2d 45 (6th Cir. 1992), cert. den., 506 U.S. 820, 113 S.Ct.67, 121 L.Ed. 2d 34 (1992). . . . . . . . . . . . . . . . . .

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STATUTES CITED N.J.S.A. 13:1D-9(e) . . . . . . . . . . . . . . . . . . . N.J.S.A. 13:9B-21 1

. . . . . . . . . . . . . . . . . . 1, 2, 4

N.J.S.A. 13:9B-21(b) . . . . . . . . . . . . . . . . . . 2, 4, 6 N.J.S.A. 13:9B-21(c)(3) . . . . . . . . . . . . . . . . . . N.J.S.A. 13:9B-21(c)(5) . . . . . . . . . . . . . . . . . . REGULATIONS CITED N.J.A.C. 7:7A-15.2(b)..........................................3 N.J.A.C. 7:7A-15.6(d)..........................................3 N.J.A.C. 7:7A-15.6(f) . . . . . . . . . . . . . . . . . . . . .5 N.J.A.C. 7:7A-16.4(a)(5) . . . . . . . . . . . . . . . . . . . 5 5 5

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ARGUMENT DEP DOES NOT HAVE A CLAIM WITHIN THE MEANING OF THE BANKRUPTCY CODE OR THE PLAN INJUNCTION A. The Appellee Has an Ongoing Regulatory Obligation to Correct Continuing Harm to the Environment as a Result of the Loss of 19 Acres of Freshwater Wetlands And It is Irrelevant That Harm Occurred Pre-Petition_________

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In

its

answering

brief,

the

appellee

contends

that

since the drainage of wetlands occurred pre-petition, the State has a "claim" that can be discharged in bankruptcy. contention is fundamentally flawed. case is State regulatory action Appellee's

What is at issue in this addressing what the State

Legislature has recognized as a continuing harm.

Although the

wetlands were drained prior to appellee's bankruptcy filing, the harm to the ecological balance caused by the loss of 19 acres of wetlands continues unabated. Unless the functions and values of

those wetlands are restored, the State will continue to suffer environmental harm in the future. The State does not need to present evidence of the nature and extent of this harm to demand injunctive relief, as appellee contends. When injunctive relief is sought by a

government unit statutorily authorized to seek injunctive relief as the Department is by its enabling statute, N.J.S.A. 13:1D9(e), as well as the FWPA, N.J.S.A. 13:9B-21, it is not

necessary for the government to show irreparable harm or that equities issue. F.Supp. favor the grant of relief before an injunction can

United States v. 722 (W.D.Mich.

Production Plated Plastics, Inc.,762 1991), aff'd 955 F.2d 45 (6th Cir. 2d 34

1992), cert.

den., 506 U.S. 820, 113 S.Ct.67, 121 L.Ed.

(1992). It is enough to show that the law is being violated.

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Furthermore,

by

enacting

the

FWPA,

the

New

Jersey

Legislature officially recognized the importance of functioning wetlands to the health of the State's ecology, and the harm that flows from their loss1. Thus, upon finding a violation, the

Commissioner may require restoration of the freshwater wetlands where the violation occurred. N.J.S.A. 13:9B-21(b). The

express terms of the FWPA do not require that the DEP prove actual harm to the environment in order to obtain restoration or mitigation. of the FWPA of See N.J.S.A. 13:9B-21. that entitles DEP to and It is the mere violation that the remedy, harm since the from the

importance their loss

freshwater

wetlands

flowing in

are

legislative

determinations

embedded

enactment. The mitigation to Commissioner compensate is for also harm authorized to to require wetlands

freshwater

resulting from violations of the FWPA. If on-site restoration in appellee's is not case,

N.J.A.C. 7:7A-15.2(b). as the Department may be

feasible, off-site

determined demanded.

restoration

N.J.A.C. 7:7A-15.6(d).

1

The vital importance of functioning wetlands is highlighted in the wake of the devastation left by Hurricane Katrina. An editorial in the New York Times today pondered "why were developers permitted to destroy wetlands and barrier islands that could have held back the hurricane's surge?" Waiting for a Leader, N.Y. Times, September 1, 2005, at A22. - 3 -

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Indeed, the fundamental purpose of the FWPA is to preserve existing wetlands and restore the functions and values of improperly lost wetlands. There is a State legislative

determination that, until the wetlands in this and any other such case are restored, the State will continue to suffer harm as the result of the destruction of an important natural

resource.

As we argued in our merits brief, bankruptcy law

supports a State's right to take regulatory action, and this Court should not permit appellee to color the State's right as a mere "claim" in order to avoid its regulatory responsibilities to the environment. B. The DEP Does Not Have a Right to Payment from the Appellee The Appellee cites to Ohio v. Kovacs, 469 U.S. 274 (1985) to support its argument that the State is asserting a claim because the Trust cannot render performance other than by payment of money. A decisive fact in the U.S. Supreme Court's

decision Kovacs, however, was that the State of Ohio was seeking only the payment of money from Kovacs, not remedial relief. Supreme Court in Kovacs emphasized that it was The "not

question[ing] that anyone in possession of the site ... must comply with the environmental laws of the State of Ohio." Id. at 285.

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Moreover,

it

is

settled

law

that

the

fact

that

a

debtor may need to expend money to comply with an injunction does not render the injunction a dischargeable claim. Third Circuit's decision in Penn Terra Ltd. v. In the Dept. of

Environmental Resources, 733 F.2d 267 (3d Cir. 1984), the Court noted that "in contemporary times, almost everything costs

something.

An injunction which does not compel some expenditure Id. at

or loss of monies may often be an effective nullity." 277.

The appellee also argues that the State could have reduced the relief requested to a sum certain. however, wetlands violator. order, as the and State then does seek not have the Under the FWPA, to restore from a

authority of its

reimbursement

costs

See N.J.S.A. 13:9B-21. the DEP did here,

In issuing an administrative the Commissioner may require

compliance with the provision violated, and order the violator to restore the site of the violation. N.J.S.A. 13:9B-21(b). In

a civil action in State Superior Court, the State may assess "costs effects in removing, the correcting freshwater or terminating resulting the adverse any

upon

wetland

from

unauthorized activity."

N.J.S.A. 13:9B-21(c)(3).

Also in a

Superior Court action, the State may seek a requirement that the "violator restore the site of the violation to the maximum

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extent practicable and feasible." Legislature purposely

N.J.S.A. 13:9B-21(c)(5).2 between costs relating

The to

distinguished

the termination of adverse effects upon wetlands, and imposing an obligation on the violator to restore wetlands. In this

case, the Department did not proceed with an action in Superior Court under N.J.S.A. 13:9B-21(c)(3) because there was no need

to correct a condition on the property that was further draining or degrading remaining the wetlands. best to course directly Rather, was place to the the Department an of

determined

that

initiate burden

administrative

action

restoration of the functions and values of lost wetlands on the violator, pursuant to N.J.S.A. 13:9B-21(b). In Torwico Electronics, Inc. v. State of New Jersey,

8 F.3d 146 (3d Cir. 1993), the Third Circuit noted: "[t]hat the State may have had alternative means at its disposal to end the ongoing threat does not convert its statutory authority into a Pursuant to the regulations implementing the FWPA, if, in a Superior Court action, a violator does not comply with a requirement to restore a site, "the Department may take corrective action, and will assess the violator pursuant to this chapter." N.J.A.C. 7:7A-16.4(a)(5). Thus, the Department's ability to assess costs for restoration work is only available after a violator defaults on its primary obligation to restore wetlands. Similarly, under the mitigation regulations cited by appellee, the Department may accept a monetary contribution in lieu of actual wetlands mitigation only after it has determined that several options that will more directly result in effective mitigation of the wetlands losses are not feasible. N.J.A.C. 7:7A-15.6(f). - 6 2

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`right to payment'". further noted that

Id. at 151; emphasis added. Torwico had an obligation to

The Court ameliorate

ongoing pollution and had "no option to pay for the right to allow Ibid. to pay its wastes to continue to seep into the environment."

Likewise, in this case, appellee has no option available for the right to continue to cause the harm to the

environment resulting from the loss of the functions and values of its 19 acres of freshwater wetlands. State properly exercised its statutory On the contrary, the authority to require

Landbank to mitigate for the loss of wetlands. Appellee argues that the State's request for

mitigation of the lost wetlands is hardly a compelling state interest sufficient to outweigh the rights and interests of the debtors and its creditors. The State's right to exercise its

police power is not limited to cases where there is imminent and identifiable harm to the public health and safety. Matter of

Commonwealth Oil Refining Co., 805 F.2d 1175, 1186 (5th Cir. 1986), cert. denied, 483 U.S. 1005 (1997), Hagaman v. State of

New Jersey, 151 B.R. 696, ___ (D.N.J. 1993), 1993 U.S. Dist. Lexis 21422, 7. Indeed, the State has an obvious public

interest under the FWPA to ensure that the on-going harm to the environment from the loss of vital wetlands is corrected. As

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State's

interest under

in the

correcting FWPA in is no

continuing less

damage

to than

the the See

environment government's

compelling

interest

stopping

ongoing

pollution.

Torwico Electronics, Inc. v.

State of New Jersey, 8 F.3d 146

(3d Cir. 1993), In re Chateaugay, 944 F.2d 997, (2d Cir. 1991), Matter of Commonwealth Oil Refining Co., 805 F.2d 1175, 1186 (5th Cir. 1986), cert. denied, 483 U.S. 1005 (1997).

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For the foregoing reasons, the State of New Jersey does not have a "claim" subject to the debtors' plan injunction, but, rather, is engaged in a regulatory action that cannot be stayed intent without to doing violence such to the bankruptcy law's to a 6, 2004 clear

permit the

crucial

activities status December to as

continue debtor. Order its

notwithstanding Accordingly, should be the

offender's Court's the

Bankruptcy allowing

reversed,

State

proceed

with

administrative action pursuant to its regulatory police powers.

Respectfully submitted, PETER C. HARVEY ATTORNEY GENERAL OF NEW JERSEY By: /s/ Kathrine Motley Hunt Kathrine Motley Hunt Deputy Attorney General Admitted pro hac vice

By: /s/ Stuart Drowos Stuart Drowos, Bar ID #427 Local Counsel for NJDEP Delaware Division of Revenue Carvel Building, 8th Floor 820 N. French Street Wilmington, DE 09801

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Certificate of Mailing and/or Delivery I hereby certify that on September 1, 2005, the State of New Jersey's Environmental Protection Unit electronically filed a Reply Brief with the Clerk of the Court using CM/ECF which will send notification of such filing to the following: Jeffrey M. Schlerf, Esq., and Eric M. Sutty, Esq.

PETER C. HARVEY ATTORNEY GENERAL OF NEW JERSEY

By: /s/ Kathrine Motley Hunt Kathrine Motley Hunt Deputy Attorney General Admitted pro hac vice

By: /s/ Stuart Drowos Stuart Drowos, Bar ID #427 Local Counsel for NJDEP Delaware Division of Revenue Carvel Building, 8th Floor 820 N. French Street Wilmington, DE 19801 (302) 577-8400 [email protected]