Should Environmental Cleanup Liability Be Discharged in Bankruptcy?

1357 THE UNSTOPPABLE FORCE HITS THE IMMOVABLE WALL: SHOULD ENVIRONMENTAL CLEANUP LIABILITY BE DISCHARGED IN BANKRUPTCY? INTRODUCTION Imagine you are a bankruptcy judge and a corporation has prop- erly filed for bankruptcy in your court.' The corporation is before you asking for the discharge of a debt that the corporation incurred prior to filing its bankruptcy petition.2 Your duty as a judge seems clear-to uphold the law and discharge the debtor of its prepetition liability, thereby giving the corporation the "fresh start" that bankruptcy law provides.3 Now imagine the debt the corporation is trying to shed is its liability for damage the corporation caused to the environment. 4 You know this debt is not specifically listed among those identified by Congress as nondischargeable in bankruptcy.5 Further, this corporation is responsible for many hazardous chemical sites that are leaking toxins into the environment. 6 The government has determined that the cleanup of these sites will cost tens of millions of dollars.7 If the corporation is allowed to avoid its liability, then the cleanup costs will be borne by innocent taxpayers.8 This outcome would provide incentive to other entities that deal with toxic wastes to ignore environmental protection laws, damage the environment, and simply plead bankruptcy when cleanup costs are imposed upon them.9 Now your duty is not so clear. A strict constructionist interpretation of the bankruptcy statute suggests that you discharge the cleanup costs because environmental cleanup liability is not specifically listed as an exception to discharge. 10 However, if you discharge 1. See In re Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991). 2. See id. at 999. 3. See 11 U.S.C. §§ 523, 1141, 1228, and 1328 (1988). These sections provide for the discharge of prepetition debts in a bankruptcy proceeding under the various bankruptcy chapters. Id. 4. See In re Chateaugay Corp., 944 F.2d at 999-1000. 5. See 11 U.S.C. § 523 (1988). 6. See In re Chateaugay Corp., 944 F.2d at 1000. 7. See id. at 999. 8. See infra notes 48, 76-77 and accompanying text. 9. See infra notes 207-08 and accompanying text. 10. See 11 U.S.C. § 523 (1988). See infra note 51. See also Thayer, Public Wrong and PrivateAction, 27 HARv. L. REv. 317, 320 (1914) (arguing that courts must deter- mine expressed legislative intent and refrain from conjecture regarding unexpressed intent). 1358 CREIGHTON LAW REVIEW [Vol. 25 the liability, environmental protection policies are thwarted." Should environmental and equitable principles be considered in bankruptcy law?12 Is it ethical that a corporation avoid its environ- 3 mental cleanup liability under bankruptcy law?' Federal courts are confronted with this tension between bankruptcy principles and environmental-protection laws.14 Congress has not made its intent clear as to which body of law should be accorded primacy.15 Rather than addressing the ethical considerations of bankruptcy and environmental protection laws, the courts are deciding these cases by a "formalistic" analysis of the environmental pro- 16 tection and bankruptcy statutes. This Comment examines the ethical and public policy rationales behind bankruptcy and environmental protection laws.' 7 Next, this Comment analyzes the inadequacy of formalistic reasoning as a basis for deciding these issues.18 Further, this Comment suggests that courts should explore the ethical and public policy considerations behind these laws rather than trying to reconcile the conflicting public policies through technical interpretation. 19 And finally, this Com- ment suggests that Congress should add environmental cleanup liability to the list of debts that are nondischargeable in bankruptcy. 2° BACKGROUND I. BANKRUPTCY A. The History of Bankruptcy Civilizations have dealt with individuals who were unable to pay 11. See infra notes 97-100, 200 and accompanying text. 12. See infra notes 66-71 and accompanying text. 13. See infra notes 191-212 and accompanying text. 14. Salerno, Ferland, & Hansen, Environmental Law and Its Impact on Bank- ruptcy Law-Saga of "Toxins-R-Us," 25 REAL PROP. & TR. J. 261, 262-65 (1990). 15. See infra notes 213-15 and accompanying text. 16. See infra notes 103-90 and accompanying text. See generally H.L.A. HART, THE CONCEPT OF LAW 121-50 (1961) (providing an indepth analysis of the rationale behind formalism). Formalistic analysis (formalism) is not a term with a settled mean- ing. Walsh, Redefining Radicalism: A HistoricalPerspective, 59 GEo. WASH. L. REv. 636, 639-40 (1991); Schauer, Formalism,97 YALE L.J. 509, 510 n.1 (1988). From a gener- alized viewpoint, formalism is a "commitment to," and a "belief in the possibility of," finding nonideological, nonpolitical and impersonal principles for deciding the law." Unger, The CriticalLegal Studies Movement, 96 HARv. L. REV. 561, 564 (1983). For- malism also means, in part, that "there are certain rules defining the office and that, whatever those rules may be, the judge should obey them." R. COVER, JUSTICE AC- CUSED 124 (1975). 17. See infra notes 66-77, 97-100 and accompanying text. 18. See infra notes 213-37 and accompanying text. 19. See infra notes 238-68 and accompanying text. 20. See infra notes 269-72 and accompanying text. 1992] BANKRUPTCY/ENVIRONMENT 1359 their debts in a variety of ways.2 ' Sometimes, the debtor's posses- sions were sold.22 Other times, the debtor was sold.23 In Roman times, the creditors did not stop at the division of the debtor's posses- sions-they took the debtor to the plaza and divided him as well.24 The public policy behind these practices centered around general and special deterrence.2 1. The Development of Bankruptcy Law in England The original English bankruptcy statute was adopted in 1571 dur- ing the reign of Elizabeth 1.26 The statute was designed primarily for use against commercial traders.27 Bankruptcy was an involuntary super-attachment of all the debtor's property for equal division among all the creditors. 2s The bankruptcy proceeding unified all the individual attachments and garnishments into a single proceeding for 9 economic efficiency.2 "Insolvency law," designed for relief of individual debtors, devel- 21. See infra notes 22-34 and accompanying text. 22. See C. NADLER, THE LAW OF BANKRUcrcy 2 (1948). 23. See Seligson, Major Problemsfor Consideration of by the Commission on the Bankruptcy Law of the United States, 45 AM. BANKR L.J. 73, 78 (1971) (stating "It]he attitude towards and the treatment of delinquent debtors have been subjected to sig- nificant changes since the days of torture and slavery under the Roman laws and days of pillory and imprisonment under English laws.") As further proof of the extremes to which creditors have gone to vent their anger regarding unpaid debts, history indi- cates that sometimes a debt was only satisfied after the creditor violated the debtor's wife. F. NOEL, A HISTORY OF THE BANKRUPrCY LAw 32, 124 (1919). 24. Seligson, 45 A. BANKR. L.J. at 78. See also E. WARREN & J. WESTBROOK, THE LAW OF DEwroRs AND CREDrroRs 187 (2d ed. 1991). 25. See M. BASsIOuNI, CRImINAL LAW AND ITS PROCESSES 11-12 (1969) (stating "the theoretical justification for criminal punishment is based on several factors, in- cluding- (1) Retribution, (2) Correction, (3) Deterrence, and (4) Incapacitation"). See also P. Low, J. JEFFRis, R. BoNNIE, CRIMINAL LAW: CASES AND MATERIALS 8 (1982). One commentator states: The concept of deterrence is typically divided into special and general deterrence. Special deterrence, sometimes called deterrence by intimidation, refers to steps taken to dissuade the particular offender from repeating his crime. The hope is that the conviction and sentence will bring the consequences of further criminal behavior dramatically to the offender's attention and thereby induce him to refrain from such conduct in the future. General deterrence, often called general prevention or deterrence by example, refers to the impact of sentence and conviction on others. The idea is that other people will be de- terred from criminal behavior once they see what happens to those who com- mit crimes. Id. 26. Sullivan, Warren & Westbrook, Limiting Access to Bankruptcy Discharge: An Analysis Qf the Creditors'Data, 1983 Wis. L. REv. 1091, 1098 n.37. 27. Id. at 1098. 28. Id. 29. See R. POsNER, ECONOMIc ANALYSIS OF LAw 320-56 (3d. ed. 1975); Posner, The Ethical and Political Basis of the Fjficiency Norm in Common Law Adjudication, 8 HOFSTRA L. REv. 487, 488 (1982). 1360 CREIGHTON LAW REVIEW [Vol. 25 oped later.3s A debtor placed his property in the hands of his creditors in exchange for a judicial discharge from debtor's prison.3 ' However, the debtor was not discharged from his debts.3 2 Creditors were free to use other collection devices to satisfy their debts.3 3 In summary, the Elizabethans apparently concluded that impoverish- ment rather than imprisonment was the worst consequence that a non-paying debtor should face.34 2. Bankruptcy Law in the United States of America Notwithstanding specific constitutional recognition that a uniform bankruptcy act was vital to national interests, the United States of America was without a uniform bankruptcy act for its first 109 years.35 The late seventeenth and eighteenth centuries in the United States were punctuated by bitter and prolonged fighting between mercantile and debtor interests.36 Opponents to a consolidated bankruptcy act thought that unifying insolvency and bankruptcy law was "to serve God and mammon."3 7 This fighting centered upon the remedies that should be available to the creditor.38 A series of short-lived bankruptcy acts were passed and re- pealed.3 9 Essentially, the federal bankruptcy "system" for the first 109 years after the adoption of the United States Constitution was nothing more than a series of brief legislative "fiats," alternatively pro-debtor or pro-creditor.

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