Petitioner State of Ohio obtained an injunction in state court
ordering respondent and other defendants to clean up a hazardous
waste disposal site. When the injunction was not complied with, the
State obtained the appointment in state court of a receiver, who
was directed to take possession of the defendants' property and
other assets and to implement the injunction. The receiver took
possession of the site but had not completed his tasks when
respondent filed a personal bankruptcy petition. Seeking to require
part of respondent's post-bankruptcy income to be applied to the
receiver's unfinished tasks, the State filed a motion in state
court to discover respondent's income and assets. At respondent's
request, the Bankruptcy Court stayed these proceedings. The State
then filed a complaint in the Bankruptcy Court seeking a
declaration that respondent's obligation under the state injunction
was not dischargeable in bankruptcy because it was not a "debt" or
"liability on a claim" within the meaning of the Bankruptcy Code.
For bankruptcy purposes, a debt is a liability on a claim. Section
101(4)(B) of the Bankruptcy Code in pertinent part defines a claim
as the
"right to an equitable remedy for breach of performance if such
breach gives rise to a right of payment, whether or not such right
to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or
unsecured."
The Bankruptcy Court ruled against the State, as did the
District Court. The Court of Appeals affirmed, holding that the
State essentially sought from respondent only a monetary payment,
and that such a required payment was a liability on a claim that
was dischargeable under the Bankruptcy Code.
Held:
1. The fact that the Army Corps of Engineers, using funds
recovered from those concerns that generated the wastes in
question, has removed the wastes from the site does not render the
case moot. The State still has a stake in the outcome of the case
based on its claim that the removal of the wastes did not satisfy
all of respondent's obligation to clean up the site since the
ground remains permeated with toxic materials that must be removed
to avoid further pollution. Pp.
469 U. S.
277-278.
2. Respondent's obligation under the injunction is a "debt" or
"liability on a claim" subject to discharge under the Bankruptcy
Code. Contrary
Page 469 U. S. 275
to the State's contention, there is no indication in the
language of 101(4)(B) that the right to performance cannot be a
claim unless it arises from a contractual arrangement. Moreover, it
is apparent that Congress desired a broad definition of a "claim"
and knew how to limit the application of a provision to contracts
when it desired to do so. Where it is clear that what the receiver
wanted from respondent after bankruptcy was the money to defray
cleanup costs, the Court of Appeals did not err in concluding that
the cleanup order had been converted into an obligation to pay
money, an obligation that was dischargeable in bankruptcy. Pp.
469 U. S.
278-283.
717 F.2d 984, affirmed.
WHITE, .J., delivered the opinion for a unanimous Court.
O'CONNOR, J., filed a concurring opinion,
post, p.
469 U. S.
285.
JUSTICE WHITE delivered the opinion of the Court.
Petitioner State of Ohio obtained an injunction ordering
respondent William Kovacs to clean up a hazardous waste site. A
receiver was subsequently appointed. Still later, Kovacs filed a
petition for bankruptcy. The question before us is whether, in the
circumstances present here, Kovacs' obligation under the injunction
is a "debt" or "liability on a claim" subject to discharge under
the Bankruptcy Code.
Page 469 U. S. 276
I
Kovacs was the chief executive officer and stockholder of
Chem-Dyne Corp., which with other business entities operated an
industrial and hazardous waste disposal site in Hamilton, Ohio. In
1976, the State sued Kovacs and the business entities in state
court for polluting public waters, maintaining a nuisance, and
causing fish kills, all in violation of state environmental laws.
In 1979, both in his individual capacity and on behalf of
Chem-Dyne, Kovacs signed a stipulation and judgment entry settling
the lawsuit. Among other things, the stipulation enjoined the
defendants from causing further pollution of the air or public
waters, forbade bringing additional industrial wastes onto the
site, required the defendants to remove specified wastes from the
property, and ordered the payment of $75,000 to compensate the
State for injury to wildlife.
Kovacs and the other defendants failed to comply with their
obligations under the injunction. The State then obtained the
appointment in state court of a receiver, who was directed to take
possession of all property and other assets of Kovacs and the
corporate defendants and to implement the judgment entry by
cleaning up the Chem-Dyne site. The receiver took possession of the
site, but had not completed his tasks when Kovacs filed a personal
bankruptcy petition. [
Footnote
1]
Seeking to develop a basis for requiring part of Kovacs'
post-bankruptcy income to be applied to the unfinished task of the
receivership, the State then filed a motion in state court to
discover Kovacs' current income and assets. Kovacs requested that
the Bankruptcy Court stay those proceedings, which it did.
[
Footnote 2] The State also
filed a complaint in the Bankruptcy
Page 469 U. S. 277
Court seeking a declaration that Kovacs' obligation under the
stipulation and judgment order to clean up the Chem-Dyne site was
not dischargeable in bankruptcy because it was not a "debt," a
liability on a "claim," within the meaning of the Bankruptcy Code.
In addition, the complaint sought an injunction against the
bankruptcy trustee to restrain him from pursuing any action to
recover assets of Kovacs in the hands of the receiver. The
Bankruptcy Court ruled against Ohio,
In re Kovacs, 29 B.R.
816 (SD Ohio 1982), as did the District Court. The Court of Appeals
for the Sixth Circuit affirmed, holding that Ohio essentially
sought from Kovacs only a monetary payment, and that such a
required payment was a liability on a claim that was dischargeable
under the bankruptcy statute.
In re Kovacs, 717 F.2d 984
(1983). We granted certiorari to determine the dischargeability of
Kovacs' obligation under the affirmative injunction entered against
him. 465 U.S. 1078 (1984).
II
Kovacs alleges that the Army Corps of Engineers, using funds
recovered from those concerns that generated the wastes, has
removed all industrial wastes from the site and that, if he has an
obligation to pay those expenses, the obligation is owed to the
United States, not the State. Kovacs urges that the case is
therefore moot. The State argues that the case is not moot, because
the removal of the barrels and
Page 469 U. S. 278
wastes from the surface did not satisfy all of Kovacs'
obligations to clean up the site; it is said that the ground itself
remains permeated with toxic materials that must be removed if
further pollution of the public waters is to be avoided. We
perceive nothing feigned or frivolous about the State's submission.
Sibron v. New York, 392 U. S. 40,
392 U. S. 57
(1968). The State surely has a stake in the outcome of this case,
United States Parole Comm'n v. Geraghty, 445 U.
S. 388,
445 U. S. 397
(1980), which in our view is not moot. We proceed to the
merits.
III
Except for the nine kinds of debts saved from discharge by 11
U.S.C. § 523(a), a discharge in bankruptcy discharges the debtor
from all debts that arose before bankruptcy. § 727(b). It is not
claimed here that Kovacs' obligation under the injunction fell
within any of the categories of debts excepted from discharge by §
523. Rather, the State submits that the obligation to clean up the
Chem-Dyne site is not a debt at all within the meaning of the
bankruptcy law.
For bankruptcy purposes, a debt is a liability on a claim. §
101(11). A claim is defined by § 101(4) as follows:
"(4) 'claim' means -- "
"(A) right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured; or"
"(B) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such
right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured, or
unsecured."
The provision at issue here is § 101(4)(B). For the purposes of
that section, there is little doubt that the State had the right to
an equitable remedy under state law and that the
Page 469 U. S. 279
right has been reduced to judgment in the form of an injunction
ordering the cleanup. The State argues, however, that the
injunction it has secured is not a claim against Kovacs for
bankruptcy purposes because (1) Kovacs' default was a breach of the
statute, not a breach of an ordinary commercial contract which
concededly would give rise to a claim; and (2) Kovacs' breach of
his obligation under the injunction did not give rise to a right to
payment within the meaning of § 101(4)(B). We are not persuaded by
either submission.
There is no indication in the language of the statute that the
right to performance cannot be a claim unless it arises from a
contractual arrangement. The State resorted to the courts to
enforce its environmental laws against Kovacs and secured a
negative order to cease polluting, an affirmative order to clean up
the site, and an order to pay a sum of money to recompense the
State for damage done to the fish population. Each order was one to
remedy an alleged breach of Ohio law; and if Kovacs' obligation to
pay $75,000 to the State is a debt dischargeable in bankruptcy,
which the State freely concedes, it makes little sense to assert
that, because the cleanup order was entered to remedy a statutory
violation, it cannot likewise constitute a claim for bankruptcy
purposes. Furthermore, it is apparent that Congress desired a broad
definition of a "claim" [
Footnote
3] and knew how to limit the application of a provision to
contracts when it desired to do so. [
Footnote 4] I Other provisions cited by Ohio refute,
rather than support, its strained interpretation. [
Footnote 5]
Page 469 U. S. 280
The courts below also found little substance in the submission
that the cleanup obligation did not give rise to a right to payment
that renders the order dischargeable under § 727. The definition of
"claim" in H.R. 8200 as originally drafted would have deemed a
right to an equitable remedy for breach of performance a claim even
if it did not give rise to a right to payment. [
Footnote 6] The initial Senate definition of claim
was narrower, [
Footnote 7] and
a compromise version, § 101(4), was finally adopted. In that
version, the key phrases "equitable remedy," "breach of
performance," and "right to payment" are not defined.
See
11 U.S.C. § 101. Nor are the differences between the successive
versions explained. The legislative history offers only a statement
by the sponsors of the Bankruptcy Reform Act with respect to the
scope of the provision:
"Section 101(4)(B) . . . is intended to cause the liquidation or
estimation of contingent rights of payment for which there may be
an alternative equitable remedy with the result that the equitable
remedy will be susceptible to being discharged in bankruptcy. For
example, in some States, a judgment for specific performance may be
satisfied by an alternative right to payment in the event
performance is refused; in that event, the creditor entitled to
specific performance would have a 'claim' for purposes of a
proceeding under title 11. [
Footnote 8]"
We think the rulings of the courts below were wholly consistent
with the statute and its legislative history, sparse as it is. The
Bankruptcy Court ruled as follows,
In re Kovacs, 29 B.R.
at 818:
Page 469 U. S. 281
"There is no suggestion by plaintiff that defendant can render
performance under the affirmative obligation other than by the
payment of money. We therefore conclude that plaintiff has a claim
against defendant within the meaning of 11 U.S.C. § 101(4), and
that defendant owes plaintiff a debt within the meaning of 11
U.S.C. § 101(11). Furthermore, we have concluded that that debt is
dischargeable. [
Footnote
9]"
The District Court affirmed, primarily because it was bound by
and saw no error in the Court of Appeals' prior opinion holding
that the State was seeking no more than a money judgment as an
alternative to requiring Kovacs personally to perform the
obligations imposed by the injunction. To hold otherwise, the
District Court explained, "would subvert
Page 469 U. S. 282
Congress' clear intention to give debtors a fresh start." App.
JA-16. The Court of Appeals also affirmed, rejecting the State's
insistence that it had no right to, and was not attempting to
enforce, an alternative right to payment:
"Ohio does not suggest that Kovacs is capable of personally
cleaning up the environmental damage he may have caused. Ohio
claims there is no alternative right to payment, but when Kovacs
failed to perform, state law gave a state receiver total control
over all Kovacs' assets. Ohio later used state law to try and
discover Kovacs' post-petition income and employment status in an
apparent attempt to levy on his future earnings. In reality, the
only type of performance in which Ohio is now interested is a money
payment to effectuate the Chem-Dyne cleanup."
"
* * * *"
"The impact of its attempt to realize upon Kovacs' income or
property cannot be concealed by legerdemain or linguistic
gymnastics. Kovacs cannot personally clean up the waste he
wrongfully released into Ohio waters. He cannot perform the
affirmative obligations properly imposed upon him by the State
court except by paying money or transferring over his own financial
resources. The State of Ohio has acknowledged this by its steadfast
pursuit of payment as an alternative to personal performance."
717 F.2d at 987-988. As we understand it, the Court of Appeals
held that, in the circumstances, the cleanup duty had been reduced
to a monetary obligation.
We do not disturb this judgment. The injunction surely obliged
Kovacs to clean up the site. But when he failed to do so, rather
than prosecute Kovacs under the environmental laws or bring civil
or criminal contempt proceedings, the State secured the appointment
of a receiver, who was ordered to take possession of all of Kovacs'
nonexempt assets as
Page 469 U. S. 283
well as the assets of the corporate defendants and to comply
with the injunction entered against Kovacs. As wise as this course
may have been, it dispossessed Kovacs, removed his authority over
the site, and divested him of assets that might have been used by
him to clean up the property. Furthermore, when the bankruptcy
trustee sought to recover Kovacs' assets from the receiver, the
latter sought an injunction against such action. Although Kovacs
had been ordered to "cooperate" with the receiver, he was disabled
by the receivership from personally taking charge of and carrying
out the removal of wastes from the property. What the receiver
wanted from Kovacs after bankruptcy was the money to defray cleanup
costs. At oral argument in this Court, the State's counsel conceded
that after the receiver was appointed, the only performance sought
from Kovacs was the payment of money. Tr. of Oral Arg.19-20. Had
Kovacs furnished the necessary funds, either before or after
bankruptcy, there seems little doubt that the receiver and the
State would have been satisfied. On the facts before it, and with
the receiver in control of the site, [
Footnote 10] we cannot fault the Court of Appeals for
concluding that the cleanup order had been converted into an
obligation to pay money, an obligation that was dischargeable in
bankruptcy. [
Footnote
11]
Page 469 U. S. 284
IV
It is well to emphasize what we have not decided. First, we do
not suggest that Kovacs' discharge will shield him from prosecution
for having violated the environmental laws of Ohio or for criminal
contempt for not performing his obligations under the injunction
prior to bankruptcy. Second, had a fine or monetary penalty for
violation of state law been imposed on Kovacs prior to bankruptcy,
§ 523(a)(7) forecloses any suggestion that his obligation to pay
the fine or penalty would be discharged in bankruptcy. Third, we do
not address what the legal consequences would have been had Kovacs
taken bankruptcy before a receiver had been appointed and a trustee
had been designated with the usual duties of a bankruptcy trustee.
[
Footnote 12] Fourth, we do
not hold
Page 469 U. S. 285
that the injunction against bringing further toxic wastes on the
premises or against any conduct that will contribute to the
pollution of the site or the State's waters is dischargeable in
bankruptcy; we here address, as did the Court of Appeals, only the
affirmative duty to clean up the site and the duty to pay money to
that end. Finally, we do not question that anyone in possession of
the site -- whether it is Kovacs or another in the event the
receivership is liquidated and the trustee abandons the property,
or a vendee from the receiver or the bankruptcy trustee -- must
comply with the environmental laws of the State of Ohio. Plainly,
that person or firm may not maintain a nuisance, pollute the waters
of the State, or refuse to remove the source of such conditions. As
the case comes to us, however, Kovacs has been dispossessed and the
State seeks to enforce his cleanup obligation by a money
judgment.
The judgment of the Court of Appeals is
Affirmed.
[
Footnote 1]
Kovacs originally filed a reorganization petition under Chapter
11 of the Bankruptcy Code, 11 U.S.C. § 1101
et seq., but
converted the petition to a liquidation bankruptcy under Chapter 7.
See 11 U.S.C. § 1112.
[
Footnote 2]
The Bankruptcy Court held that the requested hearing was an
effort to collect money from Kovacs in violation of the automatic
stay provision.
See 11 U.S.C. § 362. It entered a specific
stay as well. The District Court affirmed, ruling that Ohio was
trying to enforce a judgment obtained before filing of the
bankruptcy petition. The Court of Appeals for the Sixth Circuit
also found the hearing barred.
In re Kovacs, 681 F.2d 454
(1982). In that court's view, while § 362(b) allowed governmental
units to continue to enforce police powers through mandatory
injunctions, it denied them the power to collect money in their
enforcement efforts. Because of the later filing by Ohio of a
complaint to declare that Kovacs' obligations were not claims under
bankruptcy, we granted certiorari, vacated the judgment of the
Court of Appeals, and remanded to that court to consider whether
the dispute over the stay was moot. 459 U.S. 1167 (1983). As far as
we are advised, the Court of Appeals has taken no action on the
remand.
[
Footnote 3]
H.R.Rep. No. 95-595, p. 309 (1977); S.Rep. No. 95-989. p. 21
(1978).
See 2 R. Levin & K. Klee, Collier on
Bankruptcy � 101-.04, p. 101-16.4 (15th ed.1984).
[
Footnote 4]
See 11 U.S.C. § 365 (assumption or rejection of
executory contracts and leases).
[
Footnote 5]
Congress created exemptions from discharge for claims involving
penalties and forfeitures owed to a governmental unit, 11 U.S.C. §
523(a)(7), and for claims involving embezzlement and larceny. §
523(a)(4). If a bankruptcy debtor has committed larceny or
embezzlement, giving rise to a remedy of either damages or
equitable restitution under state law, the resulting liability for
breach of an obligation created by law is clearly a claim which is
nondischargeable in bankruptcy.
[
Footnote 6]
H.R. 8200, 95th Cong., 1st Sess., 309-310 (House Committee print
1977), as reported September 8, 1977.
[
Footnote 7]
See S. 2266, 95th Cong., 1st Sess., 299 (1977), as
introduced October 31, 1977.
[
Footnote 8]
124 Cong.Rec. 32393 (1978) (remarks of Rep. Edwards);
see
also id. at 33992 (remarks of Sen. DeConcini).
[
Footnote 9]
More fully stated, the Bankruptcy Court's observations were:
"What is at stake in the present motion is whether defendant's
bankruptcy will discharge the affirmative obligation imposed upon
him by the Judgment Entry, that he remove and dispose of all
industrial and/or other wastes at the subject premises. If
plaintiff is successful here, it would be able to levy on
defendant's wages, the action prevented by our Prior Decision,
after defendant's bankruptcy case is closed and/or the stay of 11
U.S.C. § 362 as interpreted by our Prior Decision is no longer in
force. The parties have crystallized the issue here in simple
fashion, plaintiff stoutly insisting that the just identified
affirmative obligation is not a monetary obligation, while
defendant says that it is. The problem arises, of course, because
it is not stated as a monetary obligation. Essentially for this
reason plaintiff argues that it is not a monetary obligation. Yet
plaintiff in discussing the background for the Judgment Entry says
that it expected that defendant would generate sufficient funds in
his ongoing business to pay for the cleanup. Moreover, we take
judicial notice that plaintiff sought discovery with respect to
defendant's earnings, the matter dealt with in our Prior Decision,
for the purpose of levying upon his wages, a technique which has no
application other than in the enforcement of a money judgment.
There is no suggestion by plaintiff that defendant can render
performance under the affirmative obligation other than by the
payment of money. We therefore conclude that plaintiff has a claim
against defendant within the meaning of 11 U.S.C. § 101(4), and
that defendant owes plaintiff a debt within the meaning of 11
U.S.C. § 101(11). Furthermore, we have concluded that that debt is
dischargeable."
29 B.R. at 818.
[
Footnote 10]
We were advised at oral argument that the receiver at that time
was still in possession of the site, although he was contemplating
terminating the receivership. Tr. of Oral Arg. 4, 56-57. We were
also advised that it was difficult to tell exactly who owned the
property at 500 Ford Boulevard and that, although the trustee did
not formally abandon the property, he did not seek to take
possession of it.
Id. at 55, 58.
[
Footnote 11]
The State relies on
Penn Terra, Ltd. v. Department of
Environmental Resources, 733 F.2d 267 (CA3 1984). There, the
Court of Appeals for the Third Circuit held that the automatic stay
provision of 11 U.S.C. § 362 did not apply to the State's seeking
an injunction against a bankrupt to require compliance with the
environmental laws. This was held to be an effort to enforce the
police power statutes of the State, not a suit to enforce a money
judgment. But in that case, there had been no appointment of a
receiver who had the duty to comply with the state law and who was
seeking money from the bankrupt. The automatic stay provision does
not apply to suits to enforce the regulatory statutes of the State,
but the enforcement of such a judgment by seeking money from the
bankrupt -- what the Court of Appeals for the Sixth Circuit
concluded was involved in this case -- is another matter.
[
Footnote 12]
The commencement of a case under the Bankruptcy Code creates an
estate which, with limited exceptions, consists of all of the
debtor's property wherever located. 11 U.S.C. § 541. The trustee,
who is to be appointed promptly in Chapter 7 cases, is charged with
the duty of collecting and reducing the property of the estate and
is to be accountable for all of such property. 11 U.S.C. § 704. A
custodian of the debtor's property appointed before commencement of
the case is required to deliver the debtor's property in his
custody to the trustee, unless the bankruptcy court concludes that
the interest of creditors would be better served by permitting the
custodian to continue in possession and control of the property. 11
U.S.C. § 543. After notice and hearing, the trustee may abandon any
property of the estate that is burdensome to the estate or that is
of inconsequential value to the estate. 11 U.S.C. § 554. Such
abandonment is to the person having the possessory interest in the
property. S.Rep. No. 95-989, p. 92 (1978). Property that is
scheduled but not administered is deemed abandoned. 11 U.S.C. §
554(c). Had no receiver been appointed prior to Kovacs' bankruptcy,
the trustee would have been charged with the duty of collecting
Kovacs' nonexempt property and administering it. If the site at
issue were Kovacs' property, the trustee would shortly determine
whether it was of value to the estate. If the property was worth
more than the costs of bringing it into compliance with state law,
the trustee would undoubtedly sell it for its net value, and the
buyer would clean up the property, in which event whatever
obligation Kovacs might have had to clean up the property would
have been satisfied. If the property were worth less than the cost
of cleanup, the trustee would likely abandon it to its prior owner,
who would have to comply with the state environmental law to the
extent of his or its ability.
JUSTICE O'CONNOR, concurring.
I join the Court's opinion and agree with its holding that the
cleanup order has been reduced to a monetary obligation
dischargeable as a "claim" under § 727 of the Bankruptcy Code. I
write separately to address the petitioner's concern that the
Court's action will impede States in enforcing their environmental
laws.
To say that Kovacs' obligation in these circumstances is a claim
dischargeable in bankruptcy does not wholly excuse the obligation
or leave the State without any recourse against Kovacs' assets to
enforce the order. Because "Congress has
Page 469 U. S. 286
generally left the determination of property rights in the
assets of a bankrupt's estate to state law,"
Butner v. United
States, 440 U. S. 48,
440 U. S. 54
(1979), the classification of Ohio's interest as either a lien on
the property itself, a perfected security interest, or merely an
unsecured claim depends on Ohio law. That classification -- a
question not before us -- generally determines the priority of the
State's claim to the assets of the estate relative to other
creditors.
Cf. 11 U.S.C. § 545 (trustee may avoid
statutory liens only in specified circumstances). Thus, a State may
protect its interest in the enforcement of its environmental laws
by giving cleanup judgments the status of statutory liens or
secured claims.
The Court's holding that the cleanup order was a "claim" within
the meaning of § 101(4) also avoids potentially adverse
consequences for a State's enforcement of its order when the debtor
is a corporation, rather than an individual. In a Chapter 7
proceeding under the Bankruptcy Code, a corporate debtor transfers
its property to a trustee for distribution among the creditors who
hold cognizable claims, and then generally dissolves under state
law. Because the corporation usually ceases to exist, it has no
postbankruptcy earnings that could be utilized by the State to
fulfill the cleanup order. The State's only recourse in such a
situation may well be its "claim" to the prebankruptcy assets.
For both these reasons, the Court's holding today cannot be
viewed as hostile to state enforcement of environmental laws.