Case No. 00-71461United States Bankruptcy Court, C.D. Illinois
May 10, 2001
John S. Narmont, Elizabeth Ann Pitrolo, Springfield, IL; U.S. Trustee, Peoria, IL.
OPINION
LARRY LESSEN, UNITED STATES BANKRUPTCY JUDGE
Before the Court is the Amended Motion to Reopen Case and Request for Sanctions against Illinois Environmental Protection Agency (“EPA”).
On May 4, 2000, Debtors filed their voluntary Chapter 7 bankruptcy petition. Debtors listed EPA as a creditor on their Schedule F (Creditors Holding Unsecured Nonpriority Claims), showing a debt of $28,573.98 for “fees due”. A discharge was issued on August 7, 2000. On September 20, 2000, the Trustee filed a Report of No Distribution, and a final decree was entered the following day.
On November 9, 2000, the State of Illinois Attorney General’s Office, on behalf of EPA, filed a state court complaint in the Circuit Court of Macoupin County, Illinois, seeking injunctive relief and civil penalties against Mr. Damm for maintaining an open dump in violation of the Illinois Environmental Protection Act, 415 ILCS 5/1 et seq. (2000). The action as originally pled also sought the recovery of costs of $7,619.10 associated with the removal of waste tires. Said costs were incurred in 1999. However, after Mr.
Damm’s counsel pointed out the bankruptcy filing, the cost recovery claim was dropped.
On January 12, 2001, Mr. Damm filed a Motion to Reopen Case and Request for Sanctions. Said Motion was amended on January 29, 2001. The case was reopened on February 7, 2001. Mr. Damm contends that, during the course of his Chapter 7 proceeding, he surrendered the real estate which is the subject of the state court complaint. Accordingly, he argues, any debt arising from ownership of said real estate was discharged and EPA, by filing a state court complaint and by seeking a judgment against him, has violated the automatic stay provisions of 11 U.S.C. § 362. Accordingly, Mr.
Damm seeks sanctions against EPA for violating the automatic stay and the withdrawal of the state court complaint.
EPA disputes Mr. Damm’s contention that it has violated the automatic stay. First, EPA correctly points out that the automatic stay ceased upon the issuance of the discharge, and that 11 U.S.C. § 524 applies to post-discharge violations. See In re Winterland, 142 B.R. 289, 291-92
(C.D.Ill. 1992). EPA also argues that Mr. Damm’s discharge does not preclude the injunctive relief being sought. In addition, EPA argues, the discharge does not discharge debts which are penalties payable to a governmental unit pursuant to 11 U.S.C. § 523(a)(7). As stated above, EPA concedes that the cost recovery claim was discharged and, for that reason, EPA is not pursuing the cost recovery claim.
In order for Mr. Damm’s debt to EPA to have been discharged in his bankruptcy, his obligation must have actually been a “debt” under the Bankruptcy Code. A “debt” is defined as a “liability on a claim.”11 U.S.C. § 101(12). A “claim” is defined as a:
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured(.)
11 U.S.C. § 101(5).
EPA contends that injunctive relief like that which is being sought in its state court action against Mr. Damm is not a “claim” as defined in 11 U.S.C. § 101(5). Mr. Damm generally agrees with the EPA position in the abstract; however, because he abandoned the real property in question during the course of his Chapter 7 proceeding, he no longer operates the business or has control over the purported environmental nuisance. Therefore, Mr. Damm argues, any action by EPA against him is merely an attempt to collect clean-up costs from him, which violates 11 U.S.C. § 524.
EPA seeks, inter alia, to permanently enjoin Mr. Damm from engaging in salvage operations in the State of Illinois, and to require him to undertake and complete any and all corrective and compliance actions as may be necessary to properly dispose of all waste, debris, and waste tires located on the subject property. It is clear that the relief sought is not monetary, but is intended to prohibit Mr. Damm from causing environmental harm in the future and requiring him to take action to ameliorate an ongoing hazard which he allegedly created or allowed to be created. “A cleanup order that accomplishes the dual objectives of removing accumulated wastes and stopping or ameliorating ongoing pollution emanating from such wastes is not a dischargeable claim. . . . Since there is no option to accept payment in lieu of continued pollution, any order that to any extent ends or ameliorates continued pollution is not an order for breach of an obligation that gives rise to a right of payment and is for that reason not a `claim’.” In re Torwico, 8 F.3d 146, 149-50 quoting In re Chateaugay, 944 F.2d 997, 1008 (2d Cir. 1991).
In the case at bar, the state court is best positioned to determine the merits of EPA’s complaint. If the state court finds the allegations raised in the complaint to be meritorious, the state court is well within its rights to order Mr. Damm to clean it up. EPA has no “right of payment” from Mr. Damm; rather, it has the statutory authority to force him to comply with state environmental laws by remedying an existing hazard. See Torwico, supra, 8 F.3d at 150.
Again, Mr. Damm, like the debtor in Torwico, relies most heavily on the fact that he is no longer in possession of the subject property. Thus, he asserts that he is not maintaining a nuisance or continuing to maintain the open dump. This may well be the case. However, if the law in Illinois requires Mr. Damm, who did not dispute before this Court that he is the party responsible for causing the purported environmental hazard, to clean it up whether or not he is still the owner, then the state court may certainly order it (and presumably may order that Mr. Damm be given access to the subject property in order to do so). This Court will leave the interpretation of the Illinois Environmental Protection Act to the Macoupin County Circuit Court.
EPA is also seeking relief from the Macoupin County Circuit Court against Mr. Damm in the form of a penalty payable to the Illinois Environmental Trust Fund in the amount of $1,500 plus interest as well as an order directing Mr. Damm to make “an additional penalty payment” of $7,619.10.
Section 523(a)(7) of the Bankruptcy Code provides as follows:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-
(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty(.)
For a debt to be nondischargeable, the debt must be for the benefit of a governmental unit and must be penal in nature. Kelly v. Robinson, 479 U.S. 36, 51-52, 107 S.Ct. 353, 362 (1986); Betts v. Attorney Registration and Disciplinary Commission, 165 B.R. 870, 872 (N.D.Ill. 1994), aff’d 51 F.3d 275 (7th Cir. 1995), cert. denied 516 U.S. 1012, 116 S.Ct. 571 (1995). It is not disputed in this case that the subject debts, if assessed, would be payable to a governmental unit. Thus, characterization of the debt as compensatory or punitive is determinative of its dischargeability in this case.
As stated above, EPA has already conceded that a separate “cost recovery payment” of $7,619.10 to the Used Tire Management Fund is compensatory and, thus, dischargeable.
As for the other two fines, EPA maintains these are an integral component in the state’s scheme to compel property owners to maintain their property in compliance with Illinois environmental laws and regulations.
Mr. Damm takes the position that the sums sought are not fines but are civil penalties to compel him to clean up the open dump on property of which he is no longer in possession. Mr. Damm further asserts that, because EPA was scheduled as a creditor in his bankruptcy, the motion for default judgment is actually an attempt by EPA to collect a debt which was discharged in Mr. Damm’s bankruptcy proceeding. As Mr. Damm no longer claims any ownership in the subject property, any judgment entered against him would be simply a monetary judgment and not a fine. Mr. Damm further asserts that requiring him to pay these fines, if and when the Macoupin County Circuit Court imposes them, would do nothing other than deprive him of the fresh start to which he is entitled under the Bankruptcy Code.
Contrary to Mr. Damm’s contention, there are purposes to be served by excepting fines from discharge other than depriving Mr.
Damm of his fresh start, and those purposes are to punish him for engaging in quasi-criminal conduct, to uphold the dignity and authority of the court, and to deter others from engaging in similar conduct. In other words, the primary purpose of some fines is punitive, not compensatory.
In this case, the Court finds that a fine of $1,500 plus interest payable to the Illinois Environmental Trust Fund, if assessed by the Macoupin County Circuit Court, would be clearly nondischargeable under 11 U.S.C. § 523(a)(7). Such a fine would be punitive and deterrent in nature and in no substantial sense compensatory. However, it is equally clear that the requested $7,619.10 “additional penalty payment” is merely a repackaging of the cost recovery payment of the exact same amount which is owed to the Used Tire Management Fund, the claim for which EPA concedes was discharged in Mr. Damm’s bankruptcy proceeding. Therefore, the Court concludes that the $7,619.10 “additional penalty payment”, if assessed, would be dischargeable under 11 U.S.C. § 523(a)(7) as it would be primarily compensatory in nature.
Finally, the Court finds that EPA’s actions in bringing the state court action in Macoupin County Circuit Court did not constitute a willful violation of the discharge injunction of 11 U.S.C. § 524, and does not merit the award of sanctions. Rather, EPA has acted in good faith and its actions were and are a legitimate exercise of the state’s police power. Accordingly, the automatic stay and, inferentially, the discharge injunction, are not applicable. See 11 U.S.C. § 362(b)(4); see also In re Mateer, 205 B.R. 915 (C.D.Ill. 1997).
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day, IT IS HEREBY ORDERED that the Amended Request for Sanctions against Illinois Environmental Protection Agency be and is hereby denied.
IT IS FURTHER ORDERED that a fine of $1,500 plus interest payable to the Illinois Environmental Trust Fund, if assessed against Debtor Thomas E. Damm by the Macoupin County Circuit Court, be and is hereby declared nondischargeable pursuant to 11 U.S.C. § 523 (a)(7).
IT IS FURTHER ORDERED that an “additional penalty payment” of $7,619.10, if assessed against Debtor Thomas E. Damm by the Macoupin County Circuit Court, be and is hereby declared dischargeable pursuant to 11 U.S.C. § 523(a)(7).