Automatic Stay/Filing Bankruptcy: Connecticut Court Determines Whether Landowner Must Comply With State’s Hazardous Waste Remediation Order | Mitchell, Williams, Selig, Gates & Woodyard, LLC

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The Connecticut Superior Court (Judicial District of Hartford) (“Court”) released a memorandum of decision (“Decision”) on December 27 addressing the impact of a Chapter 13 filing for bankruptcy on the enforcement a Connecticut order requesting environmental remedies. See Commissioner of the Connecticut Department of Energy and Environment c. TD Development, LLC, et al.2021 WL 6608928.

At issue was whether the action was stayed if it involved the state’s use of its police and regulatory powers.

The Connecticut Department of Energy and Environmental Protection (“DEEP”) Commissioner filed a lawsuit on March 24, 2020, seeking judicial enforcement of a final order issued against TD Development, LLC and Todd Clifford (collectively the “Defendants”).

DEEP has the authority to institute legal proceedings necessary to enforce any laws, regulations, ordinances, or permits administered, adopted, or issued by the DEEP Commissioner.

In 2018, the commissioner issued an administrative order to the defendants requiring them to:

1. secure a parcel of land previously purchased by the defendants located at 100 South Main Street in Plainfield (Moosup), Connecticut (site);
2. retain the services of one or more environmental consultants;
3. process outstanding notices of infringement;
4. submit a plan for the identification, management, removal and proper disposal of solid waste and hazardous waste; and
5. remediate the site in accordance with an approved plan and schedule.

The defendants are declared to have purchased the property subject to the order. The property is believed to have contained significant pre-existing environmental contamination requiring a remediation agreement.

DEEP had alleged that soil and water contamination on the property had not been investigated or repaired. Additionally, the state agency alleged that the defendants left piles of asbestos-laden demolition debris on the property.

Since the defendants did not request a hearing on the order issued by DEEP within the time allowed, it became a final order.

DEEP later sought permanent injunctions compelling the defendants to comply with the order and restraining them from violating certain Connecticut laws governing:

• Dangerous waste
• Solid waste management
• Water Pollution Control

The defendants subsequently filed for voluntary bankruptcy under Title 11, Chapter 13 of the United States Code. Additionally, they filed a motion for automatic stay, asserting that the court is required to issue an automatic stay pursuant to 11 USC § 362 based on the filing of the motion.

DEEP argued that the automatic stay was unenforceable. This was based on their argument that they are a government entity taking action under police and regulatory powers.

The Court cites 11 U.S.C. § 362, providing in relevant part that there is a general automatic stay against “the commencement or continuation . . . of any judicial, administrative or other action or proceeding against the debtor” However, the Court notes that under paragraph (b), there is an exception to the application of an automatic stay which states in the relevant part:

. . . “[T]the commencement or continuation of any action or proceeding by a governmental unit … to enforce the police and regulatory authority of that governmental unit … including the execution of a judgment other than a financial judgment, obtained in an action or proceeding by the government governmental unit to enforce the police or regulatory authority of that governmental unit or organization. . .”

The rationale for this exception is to prevent debtors from frustrating necessary government functions by seeking relief in the bankruptcy court.

The exception is noted to discourage:

. . . debtors to file bankruptcy petitions primarily or solely for the purpose of evading impending government efforts to invoke government police powers to interdict or deter continued debtor conduct that would seriously threaten the safety and well-being of the debtor. be public (for example, environmental and/or consumer protection regulations) . McMullen v. Sevigny, 386 F.3d 320, 324-25 (1st Cir. 2004).

The Court held that in order to determine whether the “police power” exception applies, one must assess whether a government action is intended to carry out a “public policy” or to serve its own “pecuniary interest”. In the event that the action is designed to primarily protect public safety and welfare, then it is declared to pass the public order test and is excluded from automatic suspension.

Commissioner DEEP is required to act in her official capacity as commissioner of a government unit and to exercise her duty to protect Connecticut’s environment and natural resources (and by extension the public safety and welfare) by seeking an injunction to prevent further damage caused by the contamination of defendants’ property. Consequently, the Court holds that the DEEP action falls within the exception of the police power to the automatic stay.

A copy of the decision can be downloaded here.