United States District Court, Eastern District of New York
November 28, 2001
SOLOW BUILDING COMPANY, LLC AND SOLOVIEFF REALTY CO., LLC, PLAINTIFFS,
ATC ASSOCIATES INC. AND SAFEWAY ENVIRONMENTAL CORP., DEFENDANTS.
The opinion of the court was delivered by: David G. Trager, United States District Judge.
MEMORANDUM AND ORDER
Plaintiffs Solow Building Company, LLC ("Solow") and Solovieff Realty
Company, LLC brought this action pursuant to citizen-suit provision of
the Clean Air Act, 42 U.S.C. § 7604(a)(1), and pursuant to the
Declaratory Judgment Act, 28 U.S.C. § 2201, against ATC Associates,
Inc. ("ATC") and Safeway Environmental Corp. ("Safeway") alleging
violations of the Clean Air Act, 42 U.S.C. § 7401, and seeking a
judgment declaring that defendants must indemnify plaintiffs for any
damages or penalties arising out of defendants' misconduct. ATC now
moves to dismiss plaintiffs' complaint pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure ("FRCP") contending that plaintiffs'
claims were discharged in bankruptcy because they arose, if at all, prior
to ATC's reorganization pursuant to Chapter 11 of the United States
Bankruptcy Code. In the alternative, ATC moves to dismiss plaintiffs'
complaint pursuant to Rule 12(b)(3) of the FRCP because of improper
Under Rule 12(b)(6) of the FRCP, all factual allegations must be taken
as true and construed favorably to the plaintiff. See Conley v. Gibson,
355 U.S. 41, 45-46, 78 S.Ct. 99 (1957); Bernheim v. Litt, 79 F.3d 318,
321 (2d Cir. 1996). Accordingly, below are the relevant facts as
plaintiffs allege them to be.
Solow is a leasehold owner and operator of an office building located
at 9 West 57th Street, New York, New York. See Compl. ¶ 3.
Solovieff is a fee owner of the land and building located at that
address. See id. Morgan Guarantee Trust Company ("Morgan"), a leasee of
floors 2 through 11 in plaintiffs' office building, hired ATC and Safeway
to conduct asbestos-related abatement and monitoring work on the floors
leased by Morgan. See id. ¶ 4. Defendants began renovations and
related demolition without thoroughly inspecting the area for the
presence of asbestos. See id. ¶ 13. Safeway, with the knowledge of
ATC, attempted to create containment barriers by taping polyethylene
sheeting directly to the asbestos fireproofing material. See id. ¶
15. Subsequently, when the tape pulled away from the asbestos material,
with it dry asbestos material away from the beams and deck.
See id. As a result, asbestos was released into the air outside of the
containment area. See id. The last act by ATC that allegedly
contributed to violations of the Clean Air Act as well as state and local
laws took place on January 5, 1999. See id. In addition, plaintiffs
allege that defendants engaged in continuous and systematic efforts to
hide their violations. See id. ¶¶ 17-25.
On July 26, 1999 (the "Petition Date"), ATC filed a voluntary petition
in the United States Bankruptcy Court for the Southern District of New
York, seeking relief under Chapter 11 of the United States Bankruptcy
Code. See ATC Memo. in Support at 2. By order dated July 30, 1999, the
date of September 17, 1999 was fixed as the deadline for filing all
claims against ATC. See id. By order dated March 31, 2000 (the
"Confirmation Order"), the Bankruptcy Court confirmed ATC's Fourth
Amended Joint Consolidated Plan of Reorganization (the "Plan"). See id.
The effective date of the Plan was April 27, 2000. See id.
The Confirmation Order and the Plan enjoin the commencement or
continuance of any lawsuit against ATC, on and after the Effective Date,
based on any claim, as such term is defined in Section 101(5) of the
Bankruptcy Code, that existed as of the Petition Date or that could have
been asserted against ATC during the bankruptcy proceedings. See id. at
2-3. In addition, the discharge provisions contained in the Confirmation
Order and the Plan discharge any liability of ATC arising from ATC's
pre-petition actions. See id. at 3.
ATC moves to dismiss plaintiffs' complaint pursuant to Rule 12(b)(3)
because of improper venue.*fn1 "[O]n a Rule 12(b)(3) motion to dismiss
based on improper venue, the burden of showing that venue in the forum
district is proper falls on the plaintiff." United States Envtl. Prot.
Agency v. Port Auth. of New York and New Jersey, 162 F. Supp.2d 173, 183
(S.D.N.Y. 2001) (citing Blass v. Capital Int'l Sec. Group, No.
99-CV-5738, 2001 WL 301137, at *2 (E.D.N.Y. Mar. 23, 2001)). "In a case
involving multiple claims, the plaintiff must show that venue is proper
for each claim asserted, but dismissal of an improperly venued claim is
not warranted if it is factually related to a properly venued claim and
the claims could be considered `one cause of action with two grounds of
relief.'" Id. (quoting 17 James W.M. Moore et al, Moore's Federal
Practice § 110.05 (3d ed. 1997)). Plaintiffs do not dispute that
their claim for relief for violations of the Clean Air Act is properly
venued in the Southern District of New York. However, plaintiffs urge
this court to exercise discretion to hear that claim under the pendent
venue doctrine since the second count of the complaint, a claim for a
declaratory judgment, is properly venued in the Eastern District of New
"Where . . . a party advocates exercise of pendent venue over an
additional federal claim which is subject to its own specific venue
provisions, courts have generally taken one of two approaches. First,
some courts have found that the more specific venue provisions control,
and have required that the case be brought in a
venue which satisfies the
more specific statute. Second, following an approach developed by courts
in the District of Columbia Circuit and adopted by the District Court in
the Southern District of New York, some courts determine which of the two
federal claims is the `primary' claim, and apply the venue statute
applicable to that claim." Hsin Ten Enter. USA, Inc. v. Clark Enters.,
138 F. Supp.2d 449, 462-463 (S.D.N.Y. 2000) (quoting Garrel v. NYLCare
Health Plans, Inc., No. 98 Civ. 9077, 1999 WL 459925, at *5 (S.D.N.Y.
1999)). I adopt the second approach followed by the Southern District of
New York as the proper method to analyze pendent federal venue claims.
The Clean Air Act contains a venue provision that permits a citizen
action to be commenced only in the judicial district in which the
offending source of the standard or limitation is located. See
42 U.S.C. § 7604(c)(1). Since the source of alleged pollution in
this case is located within the Southern District of New York,
plaintiffs' claim for violations of the Clean Air Act is properly venued
in that district. A declaratory judgment action, on the other hand, is
governed by the general federal venue statute, 28 U.S.C. § 1391(b).
See IMS Health, Inc. v. Vality Tech., Inc., 59 F. Supp.2d 454, 465
(E.D.Pa. 1999). As both defendants can be considered to reside in and
are subject to personal jurisdiction in the Eastern District of New
York,*fn2 plaintiffs second claim is properly venued in the Eastern
District of New York. Because plaintiffs' principal purpose in bringing
this action is not to pursue a Clean Air Act claim for damages sustained
by them, but rather to obtain indemnification in the event plaintiffs are
sued, the claim for declaratory judgment is properly characterized as the
"primary" claim. Accordingly, venue in this District is proper.
ATC's principal ground to dismiss plaintiffs' complaint pursuant to
Rule 12(b)(6) is that plaintiffs' claims were discharged in bankruptcy.
The Bankruptcy Code provides that confirmation of a reorganization plan
discharges all unsecured debts and liabilities incurred before the date
of confirmation, regardless of whether proof of the debt is filed, the
claim is disallowed, or the plan is accepted by the holder of the claim.
See 11 U.S.C. § 1141(d)(1) (1993). In order to establish a valid
pre-petition claim, two elements must be satisfied. See In re Manville
Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir. 2000).
First, the claimant must possess a "claim" as the term is defined in
the Bankruptcy Code. Id. Confirmation of a plan "discharges the debtor
from any debt that arose before the date of such confirmation."
11 U.S.C. § 1141(d)(1)(A) (emphasis added). The word "debt" is
defined in 11 U.S.C. § 101(12) as "liability on a claim." Congress
intended to give a broad definition to the term "claim" and
"contemplate[d] that all legal obligations of the debtor, no matter how
remote or contingent, will be able to be dealt with in the bankruptcy
case." In re Chateaugay Corp., 944 F.2d 997, 1003 (2d Cir. 1991). In
the context of environmental claims, it has been held that a "claim"
exists where contamination was capable of detection prior to
confirmation. See In re Texaco Inc., 182 B.R. 937, 952 (Bankr.S.D.N.Y.
1995). Since the alleged release of asbestos occurred some time in
January of 1999, more than a year prior to the Confirmation Order, and
plaintiffs do not dispute that their claims for monetary damages and
indemnification constitute a "claim" under the
Bankruptcy Code, the requirement of a "claim" is satisfied in this case.
Second, the claim must have arisen prior to the filing of the
bankruptcy petition. See In re Manville Forest Prods. Corp., 209 F.3d at
128. "[A] regulatory environmental claim will be held to arise when `a
potential . . . claimant can tie the bankruptcy debtor to a known release
of a hazardous substance.'" In re Crystal Oil Co., 158 F.3d 291, 296 (5th
Cir. 1998) (quoting In re Chicago, Milwaukee, St. Paul & Pac. R.R. Co.,
974 F.2d 775, 786 (7th Cir. 1992)). The inquiry is whether, at the time
of bankruptcy, plaintiffs "could have ascertained through the exercise of
reasonable diligence" that they had a claim against ATC for the hazardous
release in question. Id. Plaintiffs do not raise any issue concerning
this point. Moreover, considering the fact that the release of asbestos
took place months prior to the commencement of the bankruptcy proceedings
and that plaintiffs were actively litigating claims against Morgan
concerning its inadequate restoration of the leased premises at the time
of ATC's bankruptcy, see P. Opp. Memo. at 9-10, it is reasonable to
conclude that plaintiffs were or should have been aware of the hazardous
release in question before the close of ATC's bankruptcy case. Thus,
plaintiffs' claims in this case are covered by the statutory definition of
a "claim" dischargeable in bankruptcy.
However, "discharge under the Bankruptcy Code, . . . presumes that all
creditors bound by the plan have been given notice sufficient to satisfy
due process." In re U.S.H. Corp. of New York, 223 B.R. 654, 658
(Bankr.S.D.N.Y. 1998). "Inadequate notice is a defect which precludes
discharge of a claim in bankruptcy. Due process requires notice that is
`reasonably calculated to reach all interested parties, reasonably
conveys all the required information, and permits a reasonable time for a
response.'" Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995)
(quoting Greyhound Lines, Inc. v. Rogers, 62 F.3d 730, 735 (5th Cir.
1995)). For notice purposes, claimants are divided into two categories,
"known" and "unknown." See id. "Known creditors" must be provided with
actual written notice of a debtor's bankruptcy filing and bar claim
date. See id. For "unknown creditors," however, notification by
publication is generally sufficient. See id.
The Supreme Court has characterized a "known creditor" as "one whose
identity is either known or `reasonably ascertainable by the debtor.'"
72 F.3d at 346 (quoting Tulsa Prof'l Collection Serv., Inc. v. Pope,
485 U.S. 478, 490, 108 S.Ct. 1340, 1347 (1988)). "An `unknown' creditor
is one whose `interests are either conjectural or future or, although
they could be discovered upon investigation, do not in due course of
business come to knowledge [of the debtor].'" Id. A creditor is
"reasonably ascertainable" if that creditor can be discovered through
"reasonably diligent efforts." Id. (quoting Mennonite Bd. of Missions
v. Adams, 462 U.S. 791, 798 n. 4, 1003 S.Ct. 2706, 2711 n. 4 (1983)).
"Reasonable diligence does not require `impracticable and extended
searches.'" Id. (quoting Mullane v. Cent. Hanover Bank & Trust Co.,
339 U.S. 306, 317, 70 S.Ct. 652, 659 (1950)). What is reasonable depends
on the particular facts of each case. "A debtor need not be onmipotent
or clairvoyant. A debtor is obligated, however, to undertake more than a
cursory review of its records and files to ascertain its known
creditors." In re Texaco Inc., 182 B.R. at 955. "[W]hat is required is
not a vast, open ended investigation." In re U.S.H. Corp. of New York,
223 B.R. at 659. Efforts
beyond searching the debtor's own books and
records are generally not required. See id. The Fifth Circuit, for
example, has held that "in order for a claim to be reasonably
ascertainable, the debtor must have in his possession, at the very
least, some specific information that reasonably suggests both the claim
for which the debtor may be liable and the entity to whom he would be
liable." In re Crystal Oil Co., 158 F.3d at 297.
Plaintiffs contend that they were known or at least reasonably
ascertainable creditors, who were not given the required notice and thus
were not discharged in bankruptcy, because ATC had in its possession
prior to the Petition Date specific information that reasonably suggested
that plaintiffs might have a claim against ATC. Particularly, plaintiffs
rely on a December 29, 1998 letter from Steven M. Cherniak ("Cherniak"),
Solow's chief executive officer, to ATC project manager Joseph Seiler,
written almost seven months prior to ATC's filing for bankruptcy, which
stated in part that an inspection of the Morgan premises revealed that
the procedures taken by ATC in the asbestos abatement and containment
were in violation of city and state regulations. See ATC Memo. in
Support Exh. E. In addition, the letter stated:
We demand that you desist from continuing these
irregular, and what we are advised are, illegal
procedures in the asbestos abatement and containment
and will hold you and your personnel supervising the
work responsible for any damages or claims by
personnel in the building for your failure to properly
control the asbestos in the Morgan premises.
See id. (emphasis added).
Plaintiffs also cite other letters that indicate ATC's knowledge of
plaintiffs' awareness of the asbestos problem at the Morgan premises. A
January 4, 1999 letter from Cherniak to the President of Safeway copied
to ATC advised defendants "not to remove any of the tape applied directly
to the asbestos" in order to avoid an asbestos hazard. See Green Decl.
Exh. A. A January 4, 1999 letter from Cherniak to David Spader of ATC
stated in part that Solow is "extremely troubled by ATC's lack of
knowledge regarding the work Safeway is conducting in the building" and
that it has "serious questions whether or not [ATC is] taking the steps
necessary to ensure the health and safety of the building's occupants."
Id. Exh. B. Again, in a January 5, 1999 letter from Cherniak to Spader,
Cherniak mentioned that the job specifications provided by ATC to Safeway
were being violated by Safeway and instructed ATC to immediately provide
air readings that were supposed to be taken during the abatement
program. See id. Exh. C. Finally, by a January 29, 1999 letter from
Cherniak addressed to ATC and Safeway, Solow advised ATC that it will not
be permitted to perform any further construction work on the Morgan
premises, noting its findings that "portions of [the premises] have, on
numerous occasions, been in violation of both the city and state asbestos
regulations and the building's regulation specifications." Id. Exh. D.
These letters suggest that ATC was on notice of plaintiffs' awareness of
the asbestos problem and their intention to hold ATC responsible in case
plaintiffs were sued as a result of ATC's misconduct.
Furthermore, plaintiffs point out the fact that, at the time of ATC's
bankruptcy, they were actively litigating claims against Morgan
concerning its inadequate restoration of the leasehold premises in issue
and that ATC was aware of that litigation. In fact, prior to the
Petition Date, plaintiffs served subpoenas on ATC and its representatives
Joseph Seiler and David Spader, seeking documents and
testimony concerning ATC's role in the improper asbestos removal from the
Morgan premises. See id. Exh. E. Thus, plaintiffs contend
that ATC had sufficient information in its possession to confirm
plaintiffs' status as known creditors entitled to notice.
Case law seems to suggest that courts dispense with the requirement of
actual notice only in cases where a bankruptcy petitioner does not have
in its possession any information sufficient to alert the petitioner to
the existence of a problem underlying a claim in issue. See In re
Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 974 F.2d at 788 (the
Seventh Circuit concluded that, where the bankruptcy petitioner did not
have any idea that its actions led to contamination, that claimants began
testing procedures on the site before the close of bankruptcy, and where
claimants did not take any steps to inform the petitioner of the
situation, the claimants were not entitled to the status of a known
creditor); In re U.S.H. Corp. of New York, 223 B.R. at 660 (a petitioner
could not have been expected to discover any potential claim of the
claimants prior to confirmation where there is no building code, standard
or law which required the petitioner to follow the building standards at
issue in litigation); In re Texaco Inc., 182 B.R. at 954-955 (since the
petitioner had no reason to believe that contaminated water stored in pits
might have migrated two miles underground to the tract owned by the
claimants, claimants were not known creditors); compare In re Crystal Oil
Co., 158 F.3d at 297-298 (where the bankruptcy petitioner received a
phone call from the claimant regarding a site with a hazardous waste
problem and mistakenly concluded that it was not the owner of the
property, the issue of whether the claimant was a reasonably ascertainable
creditor was entirely an issue of fact).
In this case, defendants knew that their actions led to the asbestos
problem. Solow took steps to inform ATC of the problem in numerous
letters cited above, one of which was written almost seven months prior
to ATC's filing for bankruptcy, addressed to ATC's representative who was
still on the scene when ATC filled for bankruptcy, and specifically
stated that the plaintiffs "will hold [ATC] and [its] personnel
supervising the work responsible for any damages or claims by personnel
in the building for [ATC's] failure to properly control the asbestos in
the Morgan premises." Finally, ATC was aware of the Morgan litigation
involving the asbestos release in issue. Thus, the record contains more
than sufficient evidence to support the conclusion that ATC should have
been alerted to the possibility that claim might reasonably be filed
against it. In re Drexel Burnham Lambert Group, Inc., 151 B.R. 674
(Bankr.S.D.N.Y. 1993). Accordingly, Solow is at least a "reasonably
ascertainable" creditor entitled to actual written notice of ATC's
bankruptcy filing. Since ATC did not provide such notice to plaintiffs,
their claims were not discharged in bankruptcy.*fn3
ATC's motion to dismiss because of improper venue under Rule 12(b)(3)
is denied. ATC's motion to dismiss under Rule 12(b)(6) is also