THOMAS L. LUDINGTON, District Judge.
On July 9, 2007, Plaintiff City of St. Louis filed a complaint in Gratiot County Circuit Court arising out of the contamination and threatened contamination of its drinking water system against Velsicol Chemical Corporation; NWI-1, Inc.; Lepetomane II, Inc., as Trustee of the Fruit of the Loom Successor Liquidation Trust; Lepetomane III, Inc., as Trustee of the Fruit of the Loom Custodial Trust; Edgewood Farms, Inc., and John Does 1-300. On August 31, 2007, Lepetomane II and III and NWI-1 removed the case to this Court. Velsicol consented to the removal. Edgewood Farms has not yet appeared or answered the complaint.
The notice of removal asserts that federal subject matter jurisdiction is premised on bankruptcy removal jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 1452(a), federal officer removal jurisdiction pursuant to 28 U.S.C. § 1442(a), and diversity jurisdiction pursuant to 28 U.S.C. § 1332. Now before the Court are Plaintiffs motion to remand [Dkt. # 16] filed on October
Subsequently, on January 15, 2010, the Court lifted the stay, noting the extended period of time that the case had been stayed without coming to a negotiated resolution. The Court provided the parties with an opportunity to supplement the prior briefing, and held a second hearing on February 24, 2010. As further explained below, Plaintiffs motion to remand will be denied because the Court has bankruptcy removal jurisdiction pursuant to §§ 1334(b) and 1452(a) and federal officer removal jurisdiction pursuant to § 1442(a). In addition, the United States' motion to intervene will be granted to allow the United States to protect its interests.
Plaintiff City of St. Louis is organized as a municipal corporation and owns and operates a public drinking water system that provides drinking water to residents and businesses in and around St. Louis, Michigan. Compl. ¶¶ 1, 6 (Notice of Removal Ex. A). The water system includes production wells that draw drinking water from groundwater aquifers, and pumping, storage, and distribution facilities and equipment. Id. ¶ 6. Plaintiff alleges that it has "a significant property interest in the waters it appropriates and uses from its wells." Id. ¶ 6.
Plaintiff alleges that from 1965 to 1978, Velsicol owned and operated a fifty-two acre DDT (dichlorodiphenyltrichlorethane) manufacturing site ("plant site") on the Pine River in St. Louis, Michigan, where it manufactured, stored, and handled DDT and various DDT related by-products and wastes, including p-CBSA (para-Chlorobenzene Sulfonic Acid). Id. ¶¶ 7, 26. DDT was used as a pesticide in agriculture, until it was prohibited by the federal government in 1972 due to the substantial risks it posed to human health and the environment. Id. ¶¶ 2, 18. Likewise, the byproduct p-CBSA negatively impacts human health and the environment. Id. ¶ 20.
Plaintiff alleges that Velsicol utilized poor waste management practices at the plant site and various locations in and around St. Louis, where it "injected, buried, discharged, disposed of, failed to contain and/or otherwise released into the environment p-CBSA and other harmful chemicals." Id. ¶¶ 7, 29. Plaintiff refers to these locations as "Contaminated Sites." Id. ¶ 3. In particular, Plaintiff alleges that from the 1930s to the 1970s, Velsicol and its predecessor in interest stored and disposed of p-CBSA and other hazardous wastes at a Contaminated Site known as the "burn pit" or "golf course site," located across the Pine River from the main Velsicol site. Id. ¶ 28. Plaintiff also alleges that Velsicol discharged contaminants directly into the Pine River, making it unadvisable to eat fish from the Pine River to this day. Id. ¶ 27.
Additionally, Plaintiff alleges that each Defendant to this action is a current or former operator or owner of the Contaminated Sites. Id. ¶ 4. Plaintiff alleges that Edgewood Farms, and possibly others, acquired the golf course site at some unidentified point in time. Id. ¶ 28. Plaintiff alleges that Northwest Industries ("NWI") purchased Velsicol in 1965 and that NWI became the successor owner of the plant site in 1986. Id. ¶ 8. Plaintiff alleges that at some point NWI became a subsidiary of Fruit of the Loom, Inc. ("FTL"). Id. ¶ 8. Through a bankruptcy proceeding that began in December 1999, FTL and NWI
Plaintiff alleges that p-CBSA and other harmful chemicals from the Contaminated Sites have migrated and continue to migrate in the earth's subsurface, contaminating and imminently threatening to contaminate Plaintiffs wells and water supply. Id. ¶¶ 3, 7, 21, 25, 29. Plaintiff alleges that p-CBSA has been detected at varying times and in varying amounts in water extracted from Plaintiffs wells, and further alleges that because p-CBSA is highly soluble in water and moves freely at approximately the rate of the groundwater's flow, its presence is known to be a precursor to detection of other harmful chemicals from the same source. Id. ¶ 2, 20, 24, 33.
Plaintiff alleges that in 1982, as part of a clean-up effort, Velsicol removed contamination at the golf course site and other Contaminated Sites, deposited those contaminated soils at the plant site, and attempted to contain the contamination there. Id. ¶ 30. Despite the effort, the containment system continues to leak various harmful chemicals into the Pine River and the drinking water aquifer, "all to Plaintiffs detriment and injury." Id. ¶ 30. Plaintiff alleges that its injuries constitute an "unreasonable interference with, and damage to, the limited subterranean supplies of fresh drinking water on which Plaintiffs wells depend and in which Plaintiff has a significant property interest." Id. ¶ 34. Plaintiff alleges that its "interest in protecting the quality of its limited drinking water supplies constitutes a reason personal for seeking damages sufficient to restore and/or replace such drinking water supplies to their pre-contamination condition." Id. ¶ 34.
Plaintiff seeks an award of exemplary damages against Velsicol, in an amount that is "sufficient to compensate Plaintiff for the humiliation, outrage, and indignity it has suffered by Velsicol's wanton acts." Id. ¶ 32, 57, 66, 74. Plaintiff alleges that Velsicol knew or should have known of the "grave harm and threat to public health" that its poor waste management practices caused and knew or should have known that its actions were threatening widespread pollution of groundwater, contamination of public and private drinking water supplies, and increased costs to public water suppliers and their customers. Id. ¶ 2, 31. Plaintiff alleges that Velsicol "knew that it was substantially certain" that its acts and omissions would cause injury and damage, including contamination of water supplies by p-CBSA and other harmful chemicals. Id. ¶ 32.
Count one of the complaint alleges violations of the Michigan Natural Resources Environmental Protection Act ("NREPA"), Mich. Comp. Laws § 324.20126a(7), against each Defendant, except Edgewood Farms. Id. ¶¶ 36-46. Plaintiff alleges that Velsicol and NWI-1 are jointly and severally liable for Plaintiffs necessary response costs because each owned and operated one of more of the Contaminated Sites at the time of the disposal of the hazardous wastes, and was responsible for causing the release and threat of release of the hazardous substances. Id. ¶ 42. Similarly, Plaintiff alleges that the Custodial and Successor Trusts are also jointly and severally liable because the Custodial
Count two of the complaint alleges nuisance against all Defendants. Id. ¶¶ 47-57. Plaintiff states that it is "the owner of land, easements and water rights that permit it to extract groundwater for use in its Water System. Plaintiff's injury is separate and distinct from that of the public." Id. ¶ 48. Plaintiff alleges that plumes of contamination originating from the Contaminated Sites have migrated and continue to migrate through the subsurface, contaminating and threatening to contaminate Plaintiffs water supplies, creating a nuisance. Id. ¶ 49. Plaintiff alleges that Velsicol and NWI-1 caused, created, maintained, assisted, or participated in the nuisance. Id. ¶ 50. Plaintiff alleges that the Trusts and Edgewood Farms, as owners and operators of Contaminated Sites, knew or should have known of the unreasonable risk of nuisance and failed to take reasonable steps to abate the condition. Id. ¶ 51, 52. Plaintiff alleges that the nuisance has caused "substantial injury and significant harm to Plaintiffs wells and water supply, in which Plaintiff has a significant property interest." Id. ¶ 54. Plaintiff alleges that Defendants have substantially and unreasonably interfered with its right to appropriate, use and enjoy groundwater from its wells. Plaintiff is specially and adversely affected by the nuisance." Id. ¶ 55. Plaintiff again alleges contamination by p-CBSA and threatened contamination by other chemicals. Id. ¶ 56.
Count three alleges trespass against all Defendants. Id. ¶ 58-66. Plaintiff alleges that is the owner and actual possessor of its water system, including drinking water production wells that draw groundwater from one or more aquifers. Id. ¶ 59. Plaintiff alleges that it owns, possesses and actively exercises property rights to appropriate and use groundwater drawn from drinking water production wells. Id. ¶ 60. Plaintiff alleges that Velsicol and NWI-1 failed to properly control, handle, contain, or dispose of p-CBSA, which has entered Plaintiffs property without authorization, and other harmful chemicals that threaten to enter Plaintiff's property without authorization. Id. ¶ 61. Plaintiff alleges that the Trusts and Edgewood Farms knew or should have known of the trespass or unreasonable risk thereof and ratified the intrusion by failing to remove or take reasonable steps to remove the continuing trespass. Id. ¶ 63.
Count four of the complaint alleges negligence against all Defendants. Id. ¶¶ 67-74. Plaintiff alleges that Defendants had a duty to Plaintiff to use due care in the storing, containment, handling, and disposal of p-CBSA and other harmful chemicals, and breached that duty. Id. ¶ 68. Plaintiff alleges that Velsicol and NWI1 breached the duty by injecting, burying, disposing of and failing to contain p-CBSA and other harmful chemicals. Id. ¶ 69. Plaintiff alleges that the Trusts and Edgewood Farms knew or should have known of the unreasonably dangerous conditions to persons and property and failed to take reasonable steps to protect Plaintiff from it. Id. ¶ 71.
Count five seeks declaratory relief against all Defendants. Id. ¶¶ 75-77. Finally, in its concluding request for relief, Plaintiff seeks compensatory damages, necessary response costs including enforcement costs, exemplary damages
Significant factual background information is found in the notice of removal and attached exhibits and the response to Plaintiffs motion to remand filed by Lepetomane II and III and NWI-1. The most pertinent documents include a "five-year report" prepared in 2007 by the United States Environmental Protection Agency ("EPA") with respect to contamination in St. Louis
Also important is a general understanding of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. § 9601 et seq.:
United States v. Akzo Coatings of Am., Inc., 949 F.2d 1409, 1416-18 (6th Cir.1991) (citations omitted; footnote in original).
With specific attention to the history of the Velsicol Facility in St. Louis, the EPA five-year report provides as follows:
The report affirms that St. Louis "draws its drinking water from six municipal water supply wells located within one mile of the site, and two of the wells (# 1 and # 4) are located within 1/4 mile of the easternmost edge of the main plant site." The report indicates that studies from 1978 through 1980 revealed contamination in "site soils, groundwater, river sediments, and fish."
The five-year report provides a useful summary of the attempts to manage the site from 1978 through 2007:
In conjunction with the State-lead RI fieldwork, U.S. EPA also conducted ... site investigation activities to supplement and support MDEQ's work.... As part of [a Source Migration Investigation], U.S. EPA sampled the City of St. Louis water supply wells and some private residential wells. No contamination was detected in the residential wells. The chemical [p-CBSA]... was detected in some of the city wells, including wells # 1 and # 4 (the closest to the site). p-CBSA is highly soluble in groundwater and is resistant to natural degradation, making it very mobile in groundwater and a useful indicator of contaminant movement....
The report further explains that "[i]n order to ensure protectiveness, the Superfund remedy selection process needs to be completed and a protective remedy implemented.... Additionally, long-term protectiveness may require compliance with use restrictions that prohibit interference with remedy components, limit use of land and groundwater, and advise against fish consumption until standards are met."
As referenced in the EPA five-year report, on December 29, 1999, FTL and
Generally, under the Plan, the Debtors are discharged "from all debts of, Claims against, Liens on the property of, and Equity Interests or any other interests in [the Debtors] and their assets and properties... that arose at any time before the entry of the Confirmation Order (including... all Claims that have been, may be, or could have been asserted against NWI and on which any other member of [FTL] or Reorganized [FTL] is or may be liable in any amount and for any reason) to the fullest extent permitted by law." Plan § 13.2.1; see also Confirmation Order ¶¶ 26, 43(a). The discharge is deemed to be effective "regardless of whether a proof of Claim or Equity Interest therefore was filed...." Plan § 13.2.1.
The Plan prohibits prosecution of discharged claims. Plan § 13.2.2; see also Confirmation Order ¶ 43(b). The Plan provides for the retention of jurisdiction to, inter alia, enforce the Plan's discharge and injunction provisions. Plan § 15.1(w); see also Confirmation Order ¶ 76. The Plan does not provide for the continuation of FTL or NWI's business operations. NWI-1 is a successor entity as to certain obligations and assets, but is essentially defunct and exists for very limited purposes.
Consistent with § 16.5 of the Plan, a settlement agreement between the EPA, Illinois, Michigan, New Jersey, Tennessee, FTL, NWI, Velsicol, and True Speciality Corporation (Velsicol's parent corporation) was incorporated into the Plan by the Plan Supplement. See S. Agmt. ¶ 21. The United States' motion for approval of the Settlement Agreement explains that "Congress expressed a strong preference that the United States settle with responsible parties in order to avoid spending resources on litigation rather than on cleanup," citing, inter alia, 42 U.S.C. § 9622(a). The motion also advances the following rationale for the settlement agreement:
(citations and footnotes omitted).
The Settlement Agreement was signed on dates ranging from March 12 to April 19, 2002. It resolves claims of the United
In introductory recitals, the Settlement Agreement explains that in 1986, "in connection with a management buyout of Velsicol... FTL, NWI, and Velsicol entered into an A & I [Assumption Indemnity] Agreement and NWI agreed to take title to the Seven Properties, as defined herein," and that "the A & I Agreement provided that under certain circumstances FTL and NWI may be contractually obligated to indemnify Velsicol for certain environmental liabilities with respect to the Seven Facilities and the A & I Facilities," and that "on February 28, 2001, the Bankruptcy Court entered an order approving the rejection by FTL of the A & I Agreement."
The introductory recitals to the Settlement Agreement further explain that "on or about August 11, 2000, Velsicol filed proofs of claim against Debtors FTL and NWI, on its own behalf and on behalf of EPA and all State Environmental Agencies and Subdivisions pursuant to 11 U.S.C. § 501(b) and Bankruptcy Rule 3005, for liabilities under CERCLA, contract law, and other applicable laws for the Seven Facilities and the A & I Facilities." The recitals further provide that "the Governmental Parties contend that Debtors FTL and NWI have liability under CERCLA and the Atomic Energy Act ("AEA"), 42 U.S.C. §§ 2011 et seq. and regulations promulgated thereunder, for response action and/or response costs and Natural Resource Damage with respect to the Seven Facilities and the A & I Facilities and that they are entitled to administrative expense priority for some of the Debtors' environmental liability under CERCLA." The recitals also provide that "NWI is the owner of certain Preferred Shares of stock in True Speciality Corporation, the parent corporation of Velsicol."
As pertinent here, the Settlement Agreement created two trusts, the NWI/FTL Successor Liquidating Trust ("Successor Trust" or "NWI/FTL Successor") and the Custodial Trust ("Custodial Trust"). Both Trusts must provide the United States with an annual budget for their administrative costs, which must be approved by the United States. SLT Agmt. § 3.4; CT Agmt. § 3.2. The purpose of the Custodial Trust is:
SA ¶ 2(b). See also Plan § 7.22.4. The beneficiaries of the Custodial Trust are the United States, the State parties, and the Successor Liquidation Trust. CT Agmt. § 5.1.
The obligations of the Custodial Trust are described as follows:
CT Agmt. § 2.3. The United States or a State party "may at any time propose in writing to take title to any of the Seven Properties. Any such proposed transfer and the terms thereof are subject to approval in writing by ... EPA and Michigan for the St. Louis Facility...." S. Agmt. ¶ 13.
The purpose of the Successor Trust is to "implement this Agreement by receiving and distributing the assets held by it as set forth herein to the Custodial Trust and Velsicol Environmental Trust Fund
In further detail, the Settlement Agreement describes the Successor Trust as:
See also Plan § 7.22.3.
Both the Successor Liquidation Trust Agreement and Custodial Trust Agreement provide that the respective Trustee's "powers are exercisable solely in a fiduciary capacity consistent with, and in furtherance of, the purposes of the [respective] Trust and Settlement Agreement and not otherwise." SLT Agmt. § 4.2; CT Agmt. § 4.2. Each trust is "authorized to perform any and all acts necessary and desirable to accomplish the purposes of the [respective] Trust." SLT Agmt. § 4.3; CT Agmt. § 4.3.
The Trust Agreements each provide for exculpation and indemnification of the Trustees, NWI, and FTL against "holders of claims and other parties in interest, of and from any and all claims, causes of action and other assertions of liability arising out of ownership of the [respective] Trust Assets and the discharge of powers and duties conferred upon the [respective] Trust and the [respective] Trustee by the Plan, the Settlement Agreement, this Agreement or any order of the Court entered pursuant to or in furtherance of [those], other than actions or omissions to act to the extent determined by a final order of the Court to be due to their own willful misconduct or fraud...." SLT Agmt. § 4.10; CT Agmt. § 4.10.
The Trust Accounts were to receive initial funding in the amount of the Allowed Administrative Expense Claims, which was $4,292,808, subject to certain reductions. S. Agmt. ¶¶ 3(b), 4(a). After the initial funding, proceeds received from certain insurance litigation and proceeds from the Velsicol Preferred Shares were to be allocated among the Seven Facilities, including "28% for response action or costs for the St. Louis Facility." S. Agmt. ¶ 4(a). The United States reserved the right to notify the parties and Trustees that its estimates have changed and to revise the percentage allocation. Id. The Settlement Agreement particularly noted: "With respect to the St. Louis facility, after additional response action is selected for this Facility, EPA and Michigan shall notify the Parties, NWI/FTL Successor, and the Custodial Trust as to how the percentage allocation/funding for the Facility will be equitably allocated between operation and maintenance and other response action/costs...." Id.
Under the Settlement Agreement, the United States on behalf of EPA is entitled to "an Allowed General Unsecured Claim against NWI in the total amount of $61,552,537 ... [including] $60 million for unreimbursed past and future response costs for [the Pine River site] of the St. Louis Facility." S. Agmt. ¶ 4(b). The agreement provides that "Allowed General Unsecured Claims under this Agreement shall not be discriminated against or subordinated to other allowed general unsecured claims against NWI and shall receive the distribution afforded such claims
The Settlement Agreement provides that the Trusts will not "be held liable to any third parties for any liability, action, or inaction of any other Party, including each other." S. Agmt. ¶ 10(b). It further provides that if an action is filed against either Trust "by third parties seeking to hold either responsible for any liability, action, or inaction":
Id.
The Settlement Agreement was published in the Federal Register at 67 Fed. Reg. 22, 108, on May 2, 2002. The public comment period was open until July 9, 2002, and the United States held a public meeting in St. Louis on June 19, 2002, pursuant to 42 U.S.C. § 6973(d).
On June 28, 2002, St. Louis Mayor George Kubin wrote a letter to the United States, expressing concern that "the local community was never allowed to comment on or be a part of the consent agreement," although he acknowledged that a public meeting took place in St. Louis. See Defs. Resp. Br. Ex. A. He indicated that it was his impression that it had been announced at the meeting "that none of the funds that might be collected from the settlement will be for redevelopment of the property in St. Louis, Michigan." Id.
Similarly, on July 1, 2002, St. Louis City Manager Dennis Collison wrote a letter to the United States expressing concern. Id. His letter criticized the 1982 consent judgment entered into by Velsicol, Michigan, and the U.S. EPA whereby Velsicol agreed to construct a slurry wall and clay cap at the main plant site. Id. He was critical of the fact that the Pine River was not required to be remediated by the 1982 consent judgment. Id.
On July 25, 2002, the United States sent Plaintiff, through Mayor Kubin, notice of the United States' motion for approval of the proposed settlement pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure and under CERCLA, pursuant to 28 C.F.R. § 50.7. The United States' motion describes the city officials as "seeking a guarantee of cooperation from the Trustee, funding for needed operation and maintenance of the remedial action, cleanup of areas with low contamination and a high potential for reuse, and governmental funding for all cleanup and operations and maintenance." The United States' motion asserts that nothing in the Settlement
The motion for approval of the Settlement Agreement also memorializes the fact that the United States received three public comments from citizen groups or committees relating to the St. Louis Facility in St. Louis, Michigan (the Pine River Superfund Citizen Task Force, the Technical Advisory Committee for the Pine River Superfund Citizen Task Force, and the Sierra Club's Water Sentinels Project). The motion notes the following:
On August 9, 2002, the bankruptcy court entered an order approving the EPA Settlement Agreement, with a few clarifications. In part, the order provides that:
It further provides that:
The approval order also provides that "each and every proof of claim" against NWI, FTL, or other debtor, whether filed by the United States, its agencies, the states, their agencies, Defendant Velsicol individually, or Defendant Velsicol on behalf of another entity, was "withdrawn with prejudice and expunged, except for the Allowed Governmental Claims ...."
On March 19, 2007, the bankruptcy court closed the case but again retained jurisdiction "to hear and determine all matters arising under the Environmental Settlement Agreement and this Court's August 9, 2002 Order." Similarly, the Settlement Agreement provides for the bankruptcy court to:
Plaintiff advances a declaration of St. Louis City Manager Robert McConkie, in which he states that "[t]he City of St. Louis first learned of the contamination of the City's wells with ... (pCBSA) on Friday September 23, 2005, during a meeting with [EPA representatives]." McConkie Decl. ¶ 2, Oct. 5, 2007; Mot. to Remand Ex. A. McConkie further states that "[t]he City tests its drinking water pursuant to Safe Drinking Water Act requirements, and it has relied on the expertise of the EPA and [MDEQ] to test drinking water and monitoring wells for contaminants related to the Velsicol plant site. Id. ¶ 3. Finally, Plaintiff advances the declaration of the director of the Environmental Studies Program at Alma College, Murray Borrello, who states that the golf course owned by Defendant Edgewood Farms contains p-CBSA contamination. Borrello Decl. ¶¶ 7-8, Oct. 8, 2007; Mot. to Remand Ex. B-1.
A party seeking removal bears the burden of establishing federal subject matter jurisdiction. Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999). In their notice of removal, the Trustees and NWI-1 (in this section, "Defendants") cite the following bases for removal: (1) bankruptcy removal jurisdiction pursuant to §§ 1334(b) and 1452(a); (2) federal officer removal jurisdiction pursuant to § 1442(a); and (3) diversity jurisdiction pursuant to § 1332. Plaintiff contends that not one of the three bases for federal jurisdiction support removal to this Court.
Plaintiff contends that bankruptcy jurisdiction does not exist because Plaintiffs claims do not arise under, arise in, or relate to any bankruptcy case, as necessary to establish bankruptcy jurisdiction pursuant to § 1334(b). Assuming Plaintiffs claims fall within the scope of § 1334(b), Plaintiff contends that removal of its claims is barred by § 1452(a), because Plaintiff is a governmental entity seeking to enforce its police or regulatory power. Finally, Plaintiff contends that this Court must or should abstain from exercising bankruptcy jurisdiction pursuant to § 1334(c) based on the state-law nature of Plaintiffs claims.
Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings
More specifically, "[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Id. (citations and quotations omitted). See, e.g., Robinson v. Mich. Consol. Gas Co., 918 F.2d 579, 583-84 (6th Cir.1990) (concluding that the action was "related to" a bankruptcy proceeding when the plaintiffs sued the bankruptcy trustee in his official capacity and sought recovery from the estate because "the litigation could conceivably affect the size of the . . . estate"). However, an "extremely tenuous connection" does not suffice for "related to" jurisdiction. Sanders Confectionery Prods. v. Heller Fin., Inc., 973 F.2d 474, 482 (6th Cir.1992) (quotations and citations omitted).
Plaintiff advances three primary arguments to support the proposition that this action is not "related to" a bankruptcy proceeding. First, Plaintiff contends that its claims are not related to the FTL bankruptcy because Plaintiff's claims cannot affect the administration of the bankruptcy estate when the estate has ceased to exist. Plaintiff relies primarily on Falise v. American Tobacco Co., 241 B.R. 63 (E.D.N.Y.1999), wherein the district court denied the plaintiffs' motion to vacate the dismissal of the action for lack of subject matter jurisdiction. The court explained that "[t]he mere fact that the property from a debtor's estate is transferred to a trust following the confirmation of a bankruptcy plan does not mean the bankruptcy estate itself continues to exist." Id. at 65. Rather, "[t]he bankruptcy estate ceases to exist upon confirmation and substantial consummation of the plan in a Chapter 11 reorganization." Id. Thus, the court found that bankruptcy jurisdiction did not exist because the action was not "related to" a bankruptcy action when it could not "impact[] upon the handling and administration of the bankruptcy estate." Id. (quotation omitted).
Second, Plaintiff contends that its claims are not "related to" the bankruptcy proceeding because they were not discharged by the FTL bankruptcy proceedings when Plaintiff was not a creditor in 2002 when the bankruptcy plan was confirmed. See 11 U.S.C. § 1141(d)(1)(A) ("[T]he confirmation of a plan . . . discharges the debtor from any debt that arose before the date of such confirmation . . . ."). Plaintiff relies on Michigan law for the proposition that a toxic tort cause of action "accrues" when the plaintiff knows or should have known of the injury, citing Henry v. Dow Chemical Co., 473 Mich. 63, 701 N.W.2d 684, 702 n. 29 (2005). Plaintiff asserts that it did not know that contaminants had reached its drinking water wells until September 2005. See McConkie Decl. ¶ 2. However, Plaintiff does not address whether it "should have known" of the contamination. The correspondence of the City Manager and Mayor in June and July 2002 reflects concerns regarding environmental damage, and knowledge of the bankruptcy litigation and Settlement Agreement.
In response, Defendants contend that the exhaustive nature of the Settlement Agreement and Plan "makes clear" that Plaintiff's claims are at least "related to" the FTL bankruptcy proceeding. Defendants specifically contend that the Settlement Agreement bars Plaintiffs claims, limits the use of Trust proceeds to approved claim holders in the FTL bankruptcy, limits Defendants' liability, enjoins parties from making claims against Defendants that arose prior to the plan's effective date, and provides that the bankruptcy court retains jurisdiction over the subject matter of the agreement. Defendants contend that Plaintiff's lawsuit is essentially a collateral attack on the confirmed Plan and Settlement Agreement incorporated therein, quoting Pratt v. Ventas, Inc., 365 F.3d 514, 519 (6th Cir. 2004) ("A `collateral attack' is a tactic whereby a party seeks to circumvent an earlier ruling of one court by filing a subsequent action in another court.") (citations omitted). See also Sanders Confectionary Prods., 973 F.2d at 481 (noting that "collateral attacks on confirmed plans. . . undermin[e] the necessary ability of bankruptcy courts to settle all of the claims against the debtor").
Plaintiff's claims are "related to" the FTL bankruptcy proceedings because the proceedings here could alter "rights, liabilities, options, or freedom of action" and could "impact[] upon the handling and administration of the bankrupt estate." Robinson, 918 F.2d at 583-84. Regardless of the notion that the estate ceased to exist upon confirmation of the Plan, Plaintiff has sued the Trustees (Lepetomane II and III) of the Successor and Custodial Trusts, which were created pursuant to the Plan, solely for the purpose of holding estate property and distributing estate assets. Lepetomane II and III are not entities that have emerged from bankruptcy to resume business operations, but creations of the bankruptcy proceedings to resolve particular creditor claims. The resources of the Custodial and Successor Trusts, of which Lepetomane II and III are the Trustees, are subject exclusively to the terms and administration of the bankruptcy court orders and the incorporated Settlement Agreement. Thus, any recovery from the funds of the Trusts would necessarily impact the administration of the bankrupt estate, and "related to" bankruptcy jurisdiction exists under § 1334(b).
The bankruptcy removal statute, 28 U.S.C. § 1452(a), limits the civil actions
The parties agree that this Court should look to the "automatic stay" provision of the bankruptcy code, 11 U.S.C. § 362, to help interpret § 1452(a). See In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liability Litig., 488 F.3d 112, 132 (2d Cir.2007) ("As the language of the police and regulatory power exceptions in the automatic stay context and in the removal context is virtually identical, and the purpose behind each exception is the same, we think it proper to look to judicial interpretations of section 362 for guidance.") (quotations omitted).
Plaintiff contends that this action is "a civil action by a governmental unit to enforce such governmental unit's police or regulatory power." Plaintiff relies generally on In re Javens, 107 F.3d 359, 363 (6th Cir.1997), wherein the Sixth Circuit clarified that under the police and regulatory power exception, the automatic stay does not operate when "a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law." Javens, 107 F.3d at 363 (quoting S.Rep. No. 95-989, at 52 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5838).
Plaintiff also relies on MTBE, 488 F.3d 112, which it contends is "indistinguishable" from the case now before the Court. In MTBE, the Second Circuit addressed "lawsuits originally filed by the States of California and New Hampshire in their respective state courts against corporations that manufactured, refined, marketed, or distributed gasoline containing . . . [MTBE]." 488 F.3d at 114. The complaints alleged that "MTBE contaminated public drinking water supplies through discharges, leaks, overfills, and spills from gasoline delivery facilities, as well as from the release of gasoline in certain consumer and commercial activities." Id. The court found that § 1452 prevented the removal of the plaintiffs' claims, and rejected the defendants' argument that it was significant that "the government action directed against the debtor relates mainly to the protection of a pecuniary interest rather than the enforcement of regulatory police powers for the protection of the general public." Id. at 132-34. The court noted that any money damages "will not inure, strictly speaking, to the economic benefit of the states" because "the clear goal of these proceedings is to remedy and prevent environmental damage with potentially serious consequences for public health, a significant area of state policy." Id. at 133.
Plaintiff also relies on Massachusetts v. New England Pellet, LLC, 409 B.R. 255 (D.Mass.2009). There, the court found that Massachusetts' complaint, consolidating many small claims under the state's consumer protection statute, was not properly removed based on § 1452. Id. at 258-59. The court emphasized that Massachusetts sought "injunctions, civil penalties, attorney fees and restitution." Id. at 259. The court reasoned that because restitution was "only one part of the relief sought," the action passed both the "public purpose" and "pecuniary purpose" tests. Id. at 258-59. The court also noted that the fact that Massachusetts consolidated a
Defendants contend that Plaintiff is not seeking to exercise any police or regulatory power through this lawsuit because Plaintiff merely seeks monetary damages that would come from the Successor Trust. Defendants contend that Plaintiff is not seeking to regulate Defendants' behavior because Plaintiff does not allege any ongoing behavior by Defendants that is threatening public safety that is not subject to the comprehensive Settlement Agreement, nor is Plaintiff attempting to effectuate public policy by seeking an injunction under state environmental laws.
Defendants emphasize that with respect to § 362, the Sixth Circuit has acknowledged that "there are two tests for determining whether an action by a governmental unit falls within the automatic stay or is excepted under the `police power' exception: the pecuniary purpose test and the public policy test." In re Commerce Oil Co., 847 F.2d 291, 295 (6th Cir.1988). First, "[u]nder the pecuniary purpose test, reviewing courts focus on whether the governmental proceeding relates primarily to the protection of the government's pecuniary interest in the debtor's property, and not to matters of public safety." Id. Second, "[u]nder the public policy test, reviewing courts must distinguish between proceedings that adjudicate private rights and those that effectuate public policy." Id. Under either test, the exception does not apply "if the state [i]s seeking a monetary sum merely as collection of a debt or as compensation for reclamation it had already performed." Id.
In Commerce Oil, the Sixth Circuit found that Tennessee's assessment of penalties and review of those damages under the Tennessee Water Quality Control Act, Tenn.Code § 69-3-101 et seq. were excepted from the automatic stay under the "police power" exception. Id. at 294-97. The court explained that "the rationale, policy and factors expressed in the . . . Act [were not] based upon the state's ownership of or pecuniary interest in the natural resources of Tennessee." Id. at 296. The court explained that the purposes of the Act included "[p]unishing wrongdoers, deterring illegal activity, recovering remedial costs of damage to the environment, providing for the costs of administration and weighing the social and economic value of a discharge source" which "are exercises of the state's regulatory power to effectuate public policy and are not actions based upon the state's property interests." Id. "Likewise removing, correcting or terminating pollution and determining the severity and effect of discharges on the receiving waters are actions to protect the public health and safety, and are not grounded upon the state's property interests." Id.
While Plaintiff asserts that the purpose of this action "is to remedy the contamination of the public water supply and to prevent and protect its citizens from further contamination, not to protect its pecuniary interest," Plaintiff has repeatedly emphasized that "this case is an action brought by an injured property owner." In particular, the complaint refers several times to Plaintiffs "property interest" in the water that it appropriates and its water system. See, e.g., Compl. ¶¶ 6, 34, 48, 54. Additionally, Plaintiff seeks an award of exemplary damages against Velsicol. Id. ¶¶ 32, 57, 66, 74. Although Plaintiff seeks compensation for "response costs," id. ¶¶ 1, 34, 46, Plaintiff does not seek injunctive relief or civil penalties.
Moreover, none of Plaintiffs claims are unique to its status as a governmental entity. Even though Plaintiff may aim to
Based on the above, the governmental enforcement exception embodied in § 1452(a) does not apply and bankruptcy removal jurisdiction exists. The exception also does not apply because, as will be discussed below, § 1442 provides an alternative basis for removal jurisdiction. Even if the exception were to apply, however, its application may have been waived by Plaintiff because its motion to remand was filed thirty-eight days after Defendants removed the case. For example, in Orange County Water District v. Unocal, the court explained that because § 1334(b) confers subject matter jurisdiction and § 1452(a) is merely a procedural mechanism by which removal is effected, a § 1452(a) challenge is waivable. 522 F.Supp.2d 557, 567-68 (S.D.N.Y.2007) ("If § 1452(a) challenges are not raised within thirty days, we will consider them waived pursuant to § 1447(c).").
Under § 1334(c), when subsection (b) provides the only ground for federal subject matter jurisdiction, and a timely motion is filed by "a party in a proceeding based upon a State law claim . . . related to a case under title 11 . . . the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction." Id. § 1334(c)(2). Similarly, a district court may abstain "from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11" if doing so is "in the interest of justice, or in the interest of comity with State courts or respect for State law." Id. § 1334(c)(1).
"For mandatory abstention to apply, a proceeding must: (1) be based on a state law claim or cause of action; (2) lack a federal jurisdictional basis absent the bankruptcy; (3) be commenced in a state forum of appropriate jurisdiction; (4) be capable of timely adjudication; and (5) be a non-core proceeding." In re Dow Corning Corp., 86 F.3d at 497. "Mandatory abstention under section 1334(c)(2) is not jurisdictional and must be raised in a timely motion." Robinson, 918 F.2d at 584. The central issue raised by the parties' papers is whether this action is a "core proceeding."
Core proceedings include, inter alia, "matters concerning the administration of the estate," 28 U.S.C. § 157(b)(2)(A), "orders to turn over property of the estate," id. § 157(b)(2)(E), and "other proceedings affecting the liquidation of the assets of the estate," id. § 157(b)(2)(O). Subsection 157(b)(3) provides that "[a] determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law." Id. § 157(b)(3). The Sixth Circuit has explained that "[a] core proceeding either invokes a substantive right created by federal bankruptcy law or one which could not exist outside of the bankruptcy." In re Lowenbraun, 453 F.3d 314, 320 (6th Cir.2006) (quoting Sanders Confectionery Prods., 973 F.2d at 482).
Plaintiff cites Northern Pipeline, 458 U.S. at 71-72, 102 S.Ct. 2858, for the proposition that a state common law action for damages is "categorically" a non-core proceeding. In Northern Pipeline, the Court concluded that "the assignment by Congress to bankruptcy judges of the jurisdiction granted in 28 U.S.C. § 1471 (1976 ed., Supp. IV) by § 241(a) of the Bankruptcy Act of 1978 violates Art. III of the Constitution." 458 U.S. at 52, 102 S.Ct. 2858. The 1978 Act granted the new bankruptcy courts "jurisdiction over all `civil proceedings arising under title 11 [the Bankruptcy title] or arising in or related to cases under title 11.'" Northern Pipeline, 458 U.S. at 54, 102 S.Ct. 2858 (quoting 28 U.S.C. § 1471(b) (1976 ed., Supp. IV)) (alteration and emphasis in opinion). By way of background, Northern Pipeline filed a petition for reorganization in the U.S. Bankruptcy Court for the District of Minnesota, and then filed a suit in that court against Marathon Pipe Line seeking "damages for alleged breaches of contract and warranty,. . . as well as for alleged misrepresentation, coercion, and duress." Id. at 56, 102 S.Ct. 2858. Subsequently, "Marathon sought dismissal of the suit, on the ground that the Act unconstitutionally conferred Art. III judicial power upon judges who lacked life tenure and protection against salary diminution." Id. at 56-57, 102 S.Ct. 2858.
In the portions of Northern Pipeline cited by Plaintiff, the Court addressed whether the newly established bankruptcy courts were valid as "legislative courts." Id. at 63-76, 102 S.Ct. 2858. The Court explained that controversies involving "public rights," as opposed to "private rights" "may be removed from Art. III courts and delegated to legislative courts or administrative agencies for their determination." Id. at 70, 102 S.Ct. 2858 (citations omitted). While "the liability of one individual to another under the law as defined is a matter of private rights," "a matter of public rights must at a minimum arise `between the government and others.'" Id. at 69-70, 102 S.Ct. 2858 (quotations and citations omitted). The Court explained that private rights disputes, unlike public rights disputes, cannot be delegated to legislative courts because they "lie at the core of the historically recognized judicial power." Id. at 70, 102 S.Ct. 2858.
In the bankruptcy context, the Court acknowledged that "the restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power . . . may well be a `public right,'" but "the adjudication of state-created private rights, such as the right to recover contract damages . . . obviously is not." Id. at 71, 102 S.Ct. 2858. Although Northern Pipeline's claim for contract damages "may be adjudicated in federal court on the basis of its relationship to the petition for reorganization. . . this relationship does not
Significantly, it is not apparent how Northern Pipeline supports the proposition advocated by Plaintiff, that the action now before the Court is a non-core proceeding simply because the issues raised by the complaint rest solely on Michigan law. Plaintiff has not provided an explanation, and simply emphasizes the following language from Northern Pipeline, "Even in the absence of the federal scheme, the plaintiff would be able to proceed against the defendant on the state-law contractual claims." Id. at 72 n. 26, 102 S.Ct. 2858. Presumably, Plaintiffs point is that its state-law claims are independent from the bankruptcy proceeding and could be pursued by Plaintiff regardless of whether FTL ever pursued a bankruptcy petition. Plaintiff may also implicitly advance the proposition that "the restructuring of debtor-creditor relations,. . . is at the core of the federal bankruptcy power" while the "liability of one individual to another under the law defined" is not. Id. at 71-72, 102 S.Ct. 2858 (emphasis added).
Significantly, Congress only enacted § 157 in 1984, defining "core proceedings," as a result of the invalidation of the prior bankruptcy scheme by Northern Pipeline. See generally In re Baldwin-United Corp., 52 B.R. 541, 545 (Bankr.S.D.Ohio 1985) ("When the narrow holding of [Northern Pipeline] is read in combination with pertinent provisions of the 1984 Amendments, we conclude that the primary intent of Congress was not to divest the Bankruptcy Court of all authority to adjudicate state law claims; rather, it was to create a system which meets the constitutional need for vesting the `essential attributes of judicial power' . . . in an Article III Court while also meeting the practical need for an adjunct to assist the District Court in exercising that jurisdiction as to matters arising under both state law and bankruptcy law.").
Plaintiff also cites In re John Richards Homes Building Co., 405 B.R. 192, 210-11 (E.D.Mich.2009), to support the proposition that the action now before the Court is not a core proceeding. There, the court stated: "Examples of core proceedings that arise after a bankruptcy case is dismissed or closed include awards of costs, attorney's fees, damages, punitive damages and sanctions." Id. at 210. The court concluded that the party's application for attorney fees was a core proceeding because it arose from "the judgment issued by the Bankruptcy Court, which was clearly a core proceeding, and it is inextricably intertwined with the bankruptcy case itself." Id. at 211. Without substantial explanation, Plaintiff contends that the cited case supports a conclusion that the case before the Court is not a core proceeding because "Plaintiff's common law and state statutory claims arose after and are not related to the prior bankruptcy and certainly cannot be characterized as `inextricably intertwined.'"
In Lowenbraun, the bankruptcy trustee retained an attorney to investigate whether the debtor had made improper transfers of assets from the bankruptcy estate to his wife; and the attorney eventually brought contempt proceedings against the debtor and his wife. Id. at 317. Subsequently, the debtor's wife filed a civil action in state court, asserting claims for various state-law torts against the attorney for the bankruptcy trustee, who removed the action to the federal bankruptcy court. Id. Ultimately, on appeal, the Sixth Circuit affirmed the bankruptcy court's decision that mandatory abstention was not applicable to the claims of the debtor's wife. Id. at 317, 321. The court concluded that the claims "would not exist but for the bankruptcy proceeding, and because [the attorney for the bankruptcy trustee] filed the Contempt Motion to assist in the administration of the estate, [the debtor's wife's] state-law action was a core proceeding, thus precluding mandatory abstention." Id. at 321.
Defendants also rely on Baldwin-United Corp., 52 B.R. at 548, wherein the bankruptcy court noted that "Congress did not intend that mandatory abstention could be manufactured through a flagrant violation of the automatic stay" when a defendant commenced an action in state court in an attempt to meet the requirement that "an action is commenced, and can be timely adjudicated in a State forum." Defendant asserts that, here, Plaintiff waited to bring its complaint until after the bankruptcy closed, and that conduct is akin to the situation in which a plaintiff brings a post-petition suit in state court in violation of an automatic stay and seeks to keep it there on abstention grounds.
Finally, Defendants contend that the exhaustive nature of the EPA settlement agreement and plan "makes clear" that Plaintiff's claims are core proceedings because the EPA settlement agreement bars Plaintiffs claims, limits the use of Trust proceeds to approved claim holders in the FTL bankruptcy, limits Defendants' liability, enjoins parties from making claims against Defendants that arose prior to the plan's effective date, and provides that the bankruptcy court retains jurisdiction over the subject matter of the agreement. Once again, Defendants contend that Plaintiff's lawsuit is essentially a "collateral attack" on the confirmed plan and EPA settlement agreement incorporated therein, quoting Pratt, 365 F.3d at 519.
What is even more significant is that the Trusts were created to administer the bankruptcy estate. While Plaintiff places much emphasis on the fact that its claims may not have been discharged and may not have been addressed through the bankruptcy proceeding, depending on when they arose, Plaintiff ignores the fact that it has sued the Trustees, whose sole purpose and reason to be is to administer the estate. The Trusts are creatures of bankruptcy and would not exist but for the bankruptcy proceedings. In other words, Plaintiff's claims against Lepetomane II and III are inextricably intertwined with the bankruptcy proceeding, and constitute a "core proceeding." Thus, mandatory abstention does not apply to this case. Mandatory abstention also does not apply because,
Even if mandatory abstention does not apply, Plaintiff contends that this Court should exercise its discretion to abstain under § 1334(c)(1). Plaintiff cites a list of possible factors to consider:
Delphi Automotive Sys., LLC v. Segway, Inc., 519 F.Supp.2d 662, 670-71 (E.D.Mich. 2007) (quoting Beneficial Nat'l Bank USA v. Best Receptions Sys., Inc., 220 B.R. 932, 953 (Bankr.E.D.Tenn.1998)). Plaintiff contends that "the most obvious and compelling factors" are that this case will not affect the administration of the bankruptcy estate; the case involves only state law issues; and FTL, the debtor, is not a party to the case. Plaintiff contends that whether the Trusts may be liable to third-party creditors for claims that arose after the Plan was consummated will have no effect on the Plan or the estate. Finally, Plaintiff continues to maintain that jurisdiction is not proper under other federal statutes.
In response, Defendants contend, inter alia, that this case will hinder the administration of the estate because of the Trustees' inability to allocate funds as required under the Settlement Agreement; that bankruptcy issues predominate because of the possible effects on the Plan, the Settlement Agreement, the Trust Agreements, and the Trust beneficiaries; that the Trustees were created as part of the bankruptcy proceeding and Velsicol is a party to the Settlement Agreement; and that jurisdiction exists under other statutes.
While it is possible that the Court could elect to abstain from hearing this case based on the state-law nature of Plaintiffs claims, it is important to reiterate that Lepetomane II and III and NWII operate subject to, if not solely as a creation of, the earlier bankruptcy proceedings. A concern for comity or deference to state court expertise on state law is unavailing where significant bankruptcy questions will inform on the progress of the litigation. Thus, the Court will not exercise discretion to abstain.
The federal officer removal statute, 28 U.S.C. § 1442(a)(1), provides, in relevant part, that a civil action may be removed from state court if it is commenced against:
For removal to be proper, a defendant "must both raise a colorable federal defense, and . . . show a nexus, a `causal connection' between the charged conduct and asserted official authority." Jefferson County v. Acker, 527 U.S. 423, 431, 119 S.Ct. 2069, 144 L.Ed.2d 408 (1999) (quotations and citations omitted). A private party defendant must also demonstrate that the party acted under the direction of a federal officer or agency. Watson v. Phillip Morris Co., Inc., 551 U.S. 142, 151, 127 S.Ct. 2301, 168 L.Ed.2d 42 (2007). The U.S. Supreme Court has explained that "[t]he words `acting under' are broad, and . . . the statute must be `liberally construed,'" although "broad language is not limitless." Id. at 147, 127 S.Ct. 2301.
Narrower versions of the statute have existed since "near the end of the War of 1812." See generally id. at 147-51, 127 S.Ct. 2301 (describing the history of the statute). As far back as 1880, the Court found that removal by federal officers and agents "would help to prevent hostile States from `paralyzing' the Federal Government and its initiatives." Id. at 149, 127 S.Ct. 2301 (citing Tennessee v. Davis, 100 U.S. 257, 263, 25 L.Ed. 648 (1880)). In addition, "[s]tate-court proceedings may reflect `local prejudice' against unpopular federal laws or federal officials." Id. at 150, 127 S.Ct. 2301 (citing Maryland v. Soper, (No. 1), 270 U.S. 9, 32, 46 S.Ct. 185, 70 L.Ed. 449 (1926)).
In Watson, the Supreme Court rejected the Philip Morris Companies' argument that removal was proper under § 1442 on the basis of heavy regulation by the Federal Trade Commission of testing and labeling cigarettes. 551 U.S. 142, 127 S.Ct. 2301. The Court concluded that "the fact that a federal regulatory agency directs, supervises, and monitors a company's activities in considerable detail" does not bring the company "within the scope of. . . `acting under an `officer' of the United States." Id. at 145, 127 S.Ct. 2301 (emphasis in original). The Court explained that a "private person's `acting under' must involve an effort to assist or to help carry out, the duties or tasks of the federal supervisor." Id. at 152, 127 S.Ct. 2301 (citations omitted and emphasis in original). Such effort "does not include simply complying with the law." Id. (emphasis in original).
The Court specifically distinguish Winters v. Diamond Shamrock Chemical Co., 149 F.3d 387 (5th Cir.1998), because in that case, the chemical companies "performed a job that, in the absence of a contract with a private firm, the Government itself would have had to perform." Id. at 154, 127 S.Ct. 2301. The private companies contracted with the government to produce "a specific mixture of herbicides, which eventually became known as Agent Orange." Winters, 149 F.3d at 398. The contract specified the precise mixture of ingredients, and requirements for packaging, labeling, and shipping, and the government was involved with "ongoing supervision." Id. at 398-400. On those facts, the government exercised "direct control . . . over the composition and production of Agent Orange." Id. at 398. In contrast, in Watson, the Court found that there was "no evidence of any delegation of legal authority from the FTC to the industry association to undertake testing on the Government agency's behalf." Id. at 156, 127 S.Ct. 2301.
In this case, Plaintiff contends that there is no causal connection between any federal directive and Plaintiff's allegations in the complaint. Plaintiff asserts that there is no formal delegation of power from the government and Defendants are
In order to show the requisite causal connection, Plaintiff asserts that Defendants would need to demonstrate that the government has specifically directed the Trusts not to treat or replace contaminated wells. See Jefferson County, 527 U.S. at 432, 119 S.Ct. 2069 (stating that a defendant "must demonstrate that the acts for which they are being sued . . . occurred because of what they were asked to do by the Government") (emphasis in original); MTBE, 488 F.3d at 124-25 ("Critical under the statute is to what extent defendants acted under federal direction at the time they were engaged in the conduct now sued upon.") (quotations omitted); Freiberg v. Swinerton & Walberg Prop. Servs., Inc., 245 F.Supp.2d 1144, 1152 (D.Colo.2002) ("The official must have direct and detailed control over the defendant."); Arness v. Boeing N. Am., Inc., 997 F.Supp. 1268, 1275 (C.D.Cal.1998) (finding an insufficient causal connection when the government may have directed production activities but plaintiffs claims were based on disposal activities and the government did not restrict the defendant's ability to implement safeguards for disposal); MTBE, 488 F.3d at 126-27 (finding insufficient causal connection when regulation did not specifically compel use of MTBE as an additive when the defendant did not allege that the government was aware that it was the only approved additive actually available in the market); Guillory v. Ree's Contract Serv., Inc., 872 F.Supp. 344, 347 (S.D.Miss.1994) (finding insufficient causal connection when vague directions from the government such as "maintain law and order" only established "basic parameters" rather than "direct and detailed control").
Defendants contend that the requisite causal connection exists in this case because the Trusts act under the directive of the EPA and are subject to the EPA's monitoring and control. Defendants emphasize that the Trusts' conduct with respect to the Velsicol St. Louis facility "involves an effort to assist, or help carry out, the duties or tasks" of the EPA, beyond the effort that would simply be required of a heavily regulated party. At the first hearing, defense counsel emphasized that the Trusts hold "money and assets that the EPA could have received directly from the Bankruptcy Court as approved claimant then done the work themselves. Instead they decided to create these two trusts, retain control over these two trusts." Hr'g Tr. 43, Jan. 23, 2008. Counsel emphasized that the creation of the Trusts allows the parties to work together with an "independent trustee," to have "the benefits of the bankruptcy discharge injunction and the discharge apply," and to avoid comingling with the Superfunds and to create "separate and distinct accounts for each site and yet it leaves the EPA in control." Hr'g Tr. 44. The shareholder of the trustee, Jay Steinberg, stated that "everything I do is subject to the EPA. The trusts are very very constricting from the point of view that I can make recommendations, but I have to have the approval of the EPA. And in many cases I have to have the approval of the EPA and the state government." Hr'g Tr. 7.
Defendants have advanced facts that demonstrate that the federal government exercises "direct and detailed" control over the Trusts. While Plaintiff characterizes the EPA as simply a beneficiary of the Trust, the EPA is also involved in overseeing, monitoring, and approving management of the assets and properties held by
Plaintiff also asserts that removal is improper under § 1442 because Defendants lack a colorable federal defense. Plaintiff contends that Defendants lack a federal defense because Plaintiff's claims are not barred by the bankruptcy proceedings, contribution protection provisions of the Settlement Agreement, or other payment provisions of the Settlement Agreement and related orders. Plaintiff asserts that a defense arising from those arguments is not colorable because Plaintiff's claims did not arise until well after the Plan was confirmed, Plaintiff was not a party to the bankruptcy and it is not a party to the contracts signed between the parties, Plaintiffs common law and state statutory claims regarding its drinking water are not CERCLA contribution claims, and are not covered by any of the bankruptcy documents, and the contract provisions purporting to prevent third party claims are unenforceable.
While Plaintiff argues the merits of the defense, "one of the most important purposes for removal is to have the validity of a federal defense . . . tried in federal court." Jefferson County, 527 U.S. at 431, 119 S.Ct. 2069. Plaintiff has not argued that the Trustees were acting, or failing to act, outside their authority under the Trusts to manage the assets and properties of the Trusts. Thus, Defendants have a colorable federal defense. Based on the above, removal is proper pursuant to § 1442.
The federal diversity jurisdiction statute permits a federal district court to exercise subject matter jurisdiction over actions for more than $75,000 when the citizenship of each plaintiff is diverse from the citizenship of each defendant. § 1332(a)(1); see also Glancy v. Taubman Ctr., Inc., 373 F.3d 656 (6th Cir.2004) (citing Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996)). When an action is filed in state court, a defendant may remove the case to federal district court if diversity jurisdiction exists. 28 U.S.C. § 1441. Significantly, a plaintiffs "fraudulent joinder of non-diverse defendants will not defeat removal on diversity grounds." Coyne, 183 F.3d at 493.
However, if the plaintiff has joined a non-diverse defendant and there is no other basis for federal subject matter jurisdiction, a removing defendant must show that joinder of the non-diverse defendant was fraudulent, in order to avoid remand. Jerome-Duncan, Inc. v. Auto-By-Tel, LLC., 176 F.3d 904, 907 (6th Cir. 1999) (citation omitted). "To prove fraudulent joinder, the removing party must present sufficient evidence that a plaintiff could not have established a cause of action against non-diverse defendants under state law." Coyne, 183 F.3d at 493 (citing Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir.1994)). The action must be remanded to state court "if there is a colorable basis for predicting that a plaintiff may recover against non-diverse defendants." Id. Notably, "all disputed questions of fact and ambiguities in the controlling . . . state law" must be resolved in favor of the non removing party. Id. (quoting Alexander, 13 F.3d at 949). Finally,
Plaintiff has alleged claims for trespass, nuisance, and negligence under Michigan common law against Edgewood Farms See Compl. ¶¶ 47-74. First, Defendants contend that there is no reasonable basis for concluding that Edgewood Farms could be liable in trespass, because a trespass claim requires "proof of an unauthorized direct or immediate intrusion of a physical, tangible object onto land over which the plaintiff has a right of exclusive possession." Adams v. Cleveland-Cliffs Iron Co., 237 Mich.App. 51, 602 N.W.2d 215, 222 (1999).
Defendants contend that Plaintiff has not alleged that p-CBSA, the only chemical claimed to have reached Plaintiff's wells, has been discovered on Edgewood Farms' property; and therefore, p-CBSA could not have intruded on Plaintiff's property from there. Defendants also contend that sampling conducted by Michigan confirms that p-CBSA was only detected on lands owned by entities other than Edgewood Farms. See Notice of Removal Ex. J (Nov.2006 Remedial Investigation Report). Most recently, Defendants submitted an affidavit of a professional groundwater hydrogeologist and geochemist, who explains his opinion that "[t]he Former Burn-pit Area and Golf Course are not a source of the p-CBSA that is reported in the City wells." Hennet Aff. ¶ 4, Feb. 3, 2010
While Defendants' reading of the complaint is fair, Plaintiff disputes Defendants' characterization. Plaintiff highlights that it has alleged that Edgewood Farms is the owner of a "Contaminated Site," which is defined as a place where chemicals including p-CBSA can be found. See Compl. ¶¶ 3, 11. In addition, Plaintiff advances a declaration of Murray Borrello, stating that "the property outside of the "Burn Pit" that contains pCBSA . . . is the current Hidden Oaks Golf Course owned by `Edgewood Farms, Inc.'" Borrello Decl. ¶ 8. While Defendants advance evidence to dispute whether the well identified in Mr. Borrello's declaration is on Edgewood Farm's property, see Notice of Removal Exs. K & L (title records and property survey), Plaintiff contends that even if the well is twenty feet away from Edgewood Farms' property line, it is virtually certain that p-CBSA is contained throughout Edgewood Farms' property because it had to migrate through the property from the source in order to reach that well. Borrello Decl. ¶ 9.
Defendants also contend that Plaintiff does not have exclusive ownership or possession of the groundwater, citing U.S. Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 336 N.W.2d 838, 843 (1983) (affirming trial court's ruling that "damage to the groundwater beneath plaintiff's property" was not within an insurance policy exclusion for "property owned by the insured" because "percolating water is not owned by the owner of the land under which it flows"). At the same time, Defendants contend that chemicals that contaminate ground water are "intangible objects" and not subject to trespass claims. See Postma v. County of Ottawa, No. 243602, 2004 WL 1949317, at *9 (Mich.Ct.App. 2004) (per curiam) (concluding in dicta that "contaminants in groundwater, even more so than dust that settles on land, simply becomes `a part of the ambient circumstances of that space' and will not support an action in trespass") (quoting Adams, 602 N.W.2d at 223).
Second, and similarly, Defendants contend that there is no reasonable basis to conclude that Edgewood Farms could be liable for Plaintiffs negligence claim because Plaintiff must demonstrate a "present
Third, with respect to Plaintiffs nuisance claim, Defendants emphasize that Plaintiff did not allege that Edgewood Farms caused any contamination, used any of the chemicals, was aware of any further disposal activities on its property after it bought the land, consented to disposal on its property, or buried, discharged, disposed of, burned or otherwise released chemicals into the environment. Rather, Plaintiff alleges that Edgewood Farms purchased land that was already contaminated and asserts that Edgewood Farms should have remediated the chemicals. Compl. ¶ 52. Defendants contend that Edgewood Farms could not have abated any nuisance, given that groundwater contamination would have migrated from the burn pit area and lands owned by others. In light of these facts, Defendants contend that Plaintiff cannot demonstrate that Edgewood Farms was the legal cause of the harm, citing Adkins v. Thomas Solvent Co., 440 Mich. 293, 487 N.W.2d 715, 720 (1992).
In addition, Defendants contend that Plaintiff has not sufficiently supported its position that liability for a nuisance may be imposed on a property owner who played no role in disposal activities that occurred in the relatively distant past. Defendants contend that in the cases cited by Plaintiff, Radloff v. State of Michigan, 116 Mich.App. 745, 323 N.W.2d 541, 542-43 (1982), and Sanford v. City of Detroit, 143 Mich.App. 194, 371 N.W.2d 904, 905-06 (1985), the nuisances could easily have been abated.
With respect to each of its trespass, negligence, and nuisance claims, Plaintiff relies on the Restatement (Second) of Torts § 839, for the proposition that liability can attach to actors who did not create a dangerous condition if they have knowledge of the condition and fail to abate it. Section 839 provides:
Plaintiff also highlights Comment d to § 839, entitled, "Liability for failure to act," which states in part:
Additionally, the parties' attempts to provide scientific evidence regarding whether the contaminant is, in fact, present on Defendant Edgewood Farms's property is indeterminate. While the evidence advanced by Defendants to demonstrate that contamination has not arrived at Plaintiff's wells from Edgewood Farms' property may be more compelling than the contrary evidence advanced by Plaintiff at this juncture, such a disputed fact issue does not overcome a "colorable basis" for Plaintiffs claims, particularly when discovery has not yet taken place. Thus, resolving "all disputed questions of fact and ambiguities in the controlling . . . state law" in favor of Plaintiff, Defendants have not proven that Plaintiff fraudulent joined Edgewood Farms. Thus, diversity jurisdiction does not exist.
Based on the above, Plaintiffs motion to remand will be denied because bankruptcy removal jurisdiction exists pursuant to §§ 1334(b) and 1452(a), Defendants are not barred from removing the case based on the regulatory or police power exception to § 1452(a), and mandatory or permissive abstention under § 1334(c) does not apply. In addition, federal officer removal jurisdiction exists under § 1442(a). While diversity jurisdiction does not exist pursuant to § 1332, it is not necessary, in light of jurisdiction under §§ 1334(b) and 1452(a), and § 1442(a).
Rule 24 of the Federal Rules of Civil Procedures governs both intervention as of right, Fed.R.Civ.P. 24(a), and permissive intervention, Fed.R.Civ.P. 24(b). Generally, Rule 24 should be "broadly construed in favor of potential intervenors." Stupak-Thrall v. Glickman, 226 F.3d 467, 472 (6th Cir.2000) (quoting Purnell v. Akron, 925 F.2d 941, 950 (6th Cir.1991)). In its motion to intervene, the United States asserts that it has a right to intervene, and in the alternative, that permissive intervention is appropriate.
Under Rule 24(a), the Court "must permit anyone to intervene who":
Fed.R.Civ.P. 24(a). Consistent with the text of the rule, a proposed intervenor must establish the following four factors in order to intervene as of right:
Coal. to Defend Affirmative Action v. Granholm, 501 F.3d 775, 779 (6th Cir.2007) (citing Grutter v. Bollinger, 188 F.3d 394, 397-98 (6th Cir.1999)).
First, "[t]he determination of whether a motion to intervene is timely `should be evaluated in the context of all relevant circumstances.'" Stupak-Thrall, 226 F.3d at 472-73 (quoting Jansen v. City of Cincinnati, 904 F.2d 336, 340 (6th Cir. 1990)). The Sixth Circuit has considered five specific factors particularly relevant to whether a motion is "timely":
Stupak-Thrall, 226 F.3d at 473 (quoting Jansen, 904 F.2d at 340). The United States emphasizes that Defendants' notice of removal was filed on August 31, 2007, that Plaintiff's motion to remand was filed on October 8, 2007, and that the United States' motion to intervene was filed on December 14, 2007. The initial briefing of Plaintiff's motion to remand was only completed on November 30, 2007. Also, the case has progressed very little down the "litigation continuum"; in particular, discovery has not yet taken place.
Second, with respect to a "substantial interest," the Sixth Circuit "has opted for a rather expansive notion of the interest sufficient to invoke intervention of right." Mich. State AFL-CIO v. Miller, 103 F.3d 1240, 1245 (6th Cir.1997) (citations omitted). "The inquiry into the substantiality of the claimed interest is necessarily fact-specific." Id. The United States asserts that it has a substantial legal interest in the subject matter of the underlying case, the Successor and Custodial Trusts. The United States emphasizes that it was a party to the Settlement Agreement that established the two trusts, and was a major claimant in the bankruptcy action that resulted in the Bankruptcy Order approving the Settlement Agreement. Along with the State of Michigan, the United States is a named beneficiary of the trusts, which are holding assets in trust for funding or reimbursing response actions under CERCLA at certain sites under the Agreement.
Third, the burden to show that a movant's interest may be impaired absent the intervention is "minimal"—the proposed intervenor need only show that impairment is possible. Mich. State AFL-CIO, 103 F.3d at 1247. The Sixth Circuit has noted that potential negative stare decisis effects can be the basis for impairment. Ne. Ohio Coal. for the Homeless v. Blackwell, 467 F.3d 999, 1008 (6th Cir. 2006). The United States acknowledges that it would not be legally bound by a judgment in its absence, but asserts that a negative judgment would "as a practical matter" impair its interests because Plaintiff seeks to hold the Successor and Custodial Trusts liable for response costs related to removing alleged contamination from its drinking water supplies. See New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 463 (5th Cir.1984).
The United States asserts that the outcome of any one of the following issues could adversely affect the United States' interests in protecting the integrity of the
The United States further explains that if Plaintiff is allowed to maintain its action against the Trusts and ultimately to insist that monies in the Trust accounts be used for purposes other than as specifically designated in the Settlement Agreement and related documents, other entities will be encouraged to also try to circumvent the normal EPA remedy investigation and selection process and claim a portion of the Trust monies by filing a lawsuit. Such a result could rapidly have the effect of depleting the limited Trust assets, leaving little if anything for the cleanup of the Sites as intended by the Settlement Agreement and bankruptcy court order. Moreover, an adverse ruling could potentially threaten other bankruptcy trusts established across the country that are or will be performing CERCLA cleanups.
Fourth, the bar for establishing inadequate representation is low: the Supreme Court has stated that Rule 24(a)'s requirement "is satisfied if the applicant shows that representation of his interest `may' be inadequate; and the burden of making that showing should be treated as minimal." Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n. 10, 92 S.Ct. 630, 30 L.Ed.2d 686 (1972) (citations omitted). The Sixth Circuit has expressly noted that a proposed intervenor need not show that representation will in fact be inadequate. Mich. State AFL-CIO, 103 F.3d at 1247; Ne. Ohio Coal. for the Homeless, 467 F.3d at 1008. Among other things, the possible failure of existing parties to make all of the prospective intervenor's arguments may be sufficient to show inadequate representation. Mich. State AFL-CIO, 103 F.3d at 1247.
The United States asserts that neither Plaintiff nor Defendants can adequately represent the United States' interests. The United States asserts that the Successor Trust and the Custodial Trust do not share the same interests of the United States in deciding what cleanup actions at the St. Louis Site and other sites are appropriate under CERCLA. The United States asserts that the Trusts have no role in making decisions about selecting cleanup under CERCLA or prioritizing limited funding for CERCLA cleanup actions. Nor are the Trusts in a position financially to fund extensive litigation over these issues.
Second, under Rule 24(b)(1), the proposed intervenor's claim or defense must have a question of law or fact in common with the main action. Purnell v. Akron, 925 F.2d at 950-51. The United States asserts that the key question of whether monies in the trusts can be used to fund or reimburse certain response actions is shared by both the underlying action and the proposed motion to intervene.
Under Rule 24(b)(2), if the proposed intervenor is a government agency, permissive intervention can be based on a federal law or an order or agreement issued under such law. The United States asserts that its motion to intervene is predicated on the United States' interest in managing and funding proper cleanups under CERCLA as well as the Settlement Agreement and Bankruptcy Court Order creating the trusts that are the subject matter of the underlying action. Thus, the United States asserts that permissive intervention is appropriate under either Rule 24(b)(1) or (2).
Third and last, a court must consider whether intervention would unduly delay or prejudice the adjudication of the original parties' rights. Fed.R.Civ.P. 24(b)(3); United States v. Michigan, 424 F.3d 438, 445 (6th Cir.2005) (upholding denial of permissive intervention that would require prolonged discovery, thus prejudicing the original parties). The United States asserts that its intervention poses no risk of undue delay or prejudice to the original parties because it will neither extend the duration of the litigation nor cause the parties to incur additional litigation costs. The United States asserts that issues of whether the trust monies can be used to fund response actions by Plaintiff will doubtless be litigated by the parties to the underlying action regardless of whether the United States is permitted to intervene or not.
While Plaintiff opposes intervention by the United States, Plaintiff's objections are largely moot. First, Plaintiff contends that intervention by the United States cannot confer subject matter jurisdiction if it does not already exist. The United States expressly disclaims any argument otherwise. Second, Plaintiff contends that the Court should not exercise jurisdiction over the United States' potential declaratory action if Plaintiff's claims are remanded to state court. In light of the determination above that both removal bankruptcy jurisdiction and federal officer removal jurisdiction exist, these objections are moot.
The remainder of Plaintiff's brief challenges the timeliness of the United States' motion to intervene and whether the United States' interests are adequately represented by the Trusts. Plaintiff's timeliness challenge is not persuasive, as Plaintiff simply asserts that the United States' motion was filed only a few days before the scheduled hearing on Plaintiff's motion to remand in December 2007. Additionally,
Finally, two motions to strike [Dkt. # 75, 79] filed by Plaintiff are also before the Court. Plaintiff requests that the Court strike the affidavits of Remy J-C Hennet and Thomas Alcamo, filed in conjunction with Defendants' recent supplemental briefs, on the basis that the Court only directed the parties to identify supplemental legal authority, as opposed to factual updates. While the Court only directed the parties to identify "new legal authority," it did not expressly prohibit the inclusion of new factual evidence. The intent was simply to avoid reproducing the previous briefs in their entirety, and it was not contemplated that any new factual evidence would be material to resolution of the motions then pending. In fact, neither of the affidavits submitted by Defendants were material to the resolution of the motions now decided, and Plaintiff suffered no prejudice due to their submission. Thus, Plaintiffs motions to strike will be denied.
Accordingly, it is
It is further
Under Paragraph 7(b):
With respect to any amounts over $25,000,000 received by the NWI/FTL Successor: the first $4,450,000 to the FOL Liquidation Trust ... for distribution to the Allowed Prepetition Secured Creditors, and then all remaining amounts shall be paid as follows: 50% to holders of Allowed General Unsecured Claims Against NWI and FTL; 25% to the Trust Accounts; and 25% to the Velsicol Environmental Trust Fund.... The United States may, based on revised estimates for the cost of response action and Natural Resource Damages for the Seven Facilities and the A & I Facilities, instruct the NWI/FTL Successor and Trustee to decrease the share to be paid to or held in the Trust Accounts and increase the share to be paid to the Velsicol Environmental Trust fund by the amount of this decrease. The NWI/FTL Successor will hold funds received in segregated Trust Accounts and will disburse funds from the Trust Accounts to the Custodial Trustee as provided in Paragraph 3 hereof ....
The Plan of Reorganization and/or a Bankruptcy Court order shall vest in, the NWI/FTL Successor (for the benefit of the Governmental Parties, Custodial Trust, Velsicol Environmental Trust Fund, and the FTL Insured Entities Under the PLL Policy) all of NWI, FTL, and the FTL Entities' interest in claims/proceeds/recoveries against/from the PLL Policy.... In addition, for the sole purpose of securing recoveries to the NWI/FTL Successor... the NWI/FTL Successor shall succeed to the liabilities of NWI and FTL with respect to the Seven Facilities and the A & I Facilities. Proceeds/recoveries from the PLL Policy, to the extent on account of the Seven Facilities and the A & I Facilities shall be held in trust by the NWI/FTL Successor in segregated accounts for the benefit of the Facility on account of which the recovery was obtained. With respect to recoveries on account of the Seven Facilities, the NWI/FTL Successor shall pay the Custodial Trustee in accordance with the procedures set forth in Paragraph 3(e-i) hereof. With respect to PLL coverage not relating to the Seven Facilities or the A & I Facilities, the beneficial interest in the recoveries of claims relating to such facilities pursuant to the PLL Policy shall be paid to the NWI/FTL Successor for the benefit of the FTL Insured Entities Under the PLL Policy and other entities designated in the Plan of Reorganization ...."
