Decision in NEC Holdings Corp., Holds Non-Debtor Environmental Liabi...

Summary

In a 5 page decision signed May 4, 2011, Judge Walsh of the Delaware Bankruptcy Court held that a proceeding initiated by a Debtor, seeking contribution relating to environmental claims is non-core. Judge Walsh’s opinion is available here (the “Opinion”).

Background

NEC Holdings Corp. and related entities (the “Debtors”) filed for bankruptcy on June 10, 2010. At this point, their last remaining substantial tangible asset is property in New Jersey that has been environmentally contaminated. The Debtors commenced an adversary proceeding in the Bankruptcy Court against a number of entities under theories of liability based on the environmental contamination of NEC's last remaining piece of real property.

The Defendants quickly moved the Court for a determination that the claims in the adversary proceeding are non-core.  Because Bankruptcy Courts are courts of limited jurisdiction, this is one method of removing a proceeding from the Bankruptcy Court.

Judge Walsh’s Opinion

Judge Walsh cited In re Exide Technologies, 544 F.3d 196 (3d Cir. 2008) in opining that courts in the Third Circuit conduct a “two-step test, according to which a claim will be deemed core if (1) it invokes a substantive right provided by title 11 or (2) if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case.” Exide, 544 F.3d at 206. Opinion at *3.

Judge Walsh then held that claims brought under New Jersey’s environmental acts or CERCLA do not involve any substantive rights arising under the Bankruptcy Code, and could arise outside of the bankruptcy context. Opinion at *4.  Without further ado, he granted the motion to determine that the claims in the adversary proceeding are non-core.

 
While I have the utmost respect for the judges in the Delaware Bankruptcy Court, they are not always the proper persons to officiate over a conflict. It is nice to have reaffirmed that they agree - bankruptcy professionals should handle bankruptcy matters, and non-bankruptcy matters are better left to the appropriate professionals.

John Bird practices with the law firm Fox Rothschild LLP in Wilmington, Delaware. You can reach John at 302-622-4263, or [email protected].