The opinion of the court was delivered by: Paul A. Engelmayer, District Judge:
Route 21 Associates of Belleville ("Route 21") appeals from a decision of the Hon. Robert E. Gerber, Bankruptcy Judge, in the liquidation proceedings of MHC, Inc. ("MHC"), (1) denying Route 21's cross-motion for specific performance of the parties' agreements relating to environmental clean-up; (2) denying Route 21's claim for administrative priority treatment for past and future environmental clean-up costs; and (3) disallowing Route 21's general unsecured claim for future clean-up costs. For the reasons stated herein, that decision is affirmed.
A. The Parties and Relevant Events
MHC is one of several affiliates of Lyondell Chemical Company, each of which filed voluntary Chapter 11 petitions on January 6, 2009. MHC is the successor in interest to Kidde Industries, Inc. (collectively, "the debtor").
In March 1983, Route 21 purchased property in Belleville, New Jersey (the "Site") from the debtor. AR 9, Ex. A. In 1984, Route 21 learned of contamination at the Site; the debtor remediated that pollution, and warranted that the site was free of contamination. AR 9, Ex. B at
1. However, in 1991, an underground tank was discovered and found to be leaking contamination. Id. Route 21 then filed suit against the debtor under the New Jersey Spill Compensation and Control Act. In June 1996, the parties reached a settlement agreement (the "1996 Agreement"). Under it, the debtor agreed to: (1) remediate the Site under the direction of the New Jersey Department of Environmental Protection ("NJDEP") to the extent necessary to obtain a "no further action" letter from NJDEP, see AR 9, Ex. C at 5--12; and (2) indemnify Route 21 for any environmental clean-up liability incurred as a result of the debtor's violations, see id. at 16--19.
As of 2004, that remediation work had not been fully performed. Route 21 applied to NJDEP for an agreement under New Jersey's Brownfield and Contaminated Site Remediation Act, a statute intended to provide remediation and redevelopment of under-utilized or abandoned commercial sites to make them marketable to commercial purchasers. See N.J.S.A. 58:10B-1 et seq. On March 24, 2005, Route 21 entered into an agreement with NJDEP, see AR 9, Ex. D (the "Brownfield Agreement"), although it appears that NJDEP did not formally approve the agreement until sometime in 2006, see Appellant Br. 5. The Brownfield Agreement provides, in pertinent part:
1. Route 21 . . . shall be entitled to reimbursement of 75% of the eligible costs associated with the NJDEP approved remedial action work plan for the accelerated clean up in order to meet the requirements of Wal-Mart or similar purchaser with comparable tax revenues. . . . *fn2
2. Route 21 . . . agrees to fulfill its commitments under the Memorandum entered into with the NJDEP for the environmentally sound and proper remediation of the Site, in accordance with the NJDEP approved remedial action work plan . . . and anticipates obtaining a NJDEP issued No Further Action letter for the site. . . .
3. Route 21 . . . agrees to implement and fund the remediation of the Site and to accordingly carry out and perform the work or undertaking necessary for this purpose under the supervision and approval of the NJDEP. . . .
4. Should Route 21 . . . decide not to proceed with the Project, Route 21 . . . shall notify the CEO/Secretary of its intent not to proceed . . . . Upon delivery of the notice, this Agreement shall be rendered null and void. . . .
7. Route 21 . . . has provided a good faith estimate of approximately $3,100,000.00 as to the remediation costs to be incurred pursuant to the Memorandum.
AR 9, Ex. D. In short, Route 21 agreed to take over the clean-up work at the Site, and NJDEP agreed to reimburse Route 21 for 75% of the costs it incurred in doing so.
In December 2007, Route 21 and the debtor added an addendum to the 1996 Agreement (the "2007 Addendum"),*fn3 to take into account the Brownfield Agreement. The 2007 Addendum provides, in pertinent part:
2. . . . As a result of the Brownfield Agreement, Route 21 agrees to complete the RI [remedial investigation] under the direction of NJDEP. Route 21 will remediate the soils as requested by NJDEP . . . to obtain a "No Further Action" letter for the soils. Route 21 also agrees to perform the work necessary to complete the RI for the groundwater . . . and obtain approval by NJDEP of a remedial action workplan ("RAW") for the groundwater at the Site. Route 21's undertakings hereunder are not conditioned upon the closing of the Lowe's transaction.
3. Within forty-five (45) days after approval of the RAW by NJDEP, Route 21 shall implement the RAW for groundwater . . . . In the event that the RAW is ongoing at the time of the closing of the sale to Lowe's (or any other proposed transferee), MHC shall complete the RAW for groundwater and obtain a "No Further Action" letter (or its substantial equivalent) for groundwater. . . .
5. MHC will be responsible to maintain all monitoring wells, recovery wells, vapor recovery systems or other treatment facilities constructed or installed in accordance with the approved groundwater RAW and to remove same at such time as NJDEP permits or requests such removal. . . .
7. As for off site disposal of materials, MHC agrees to sign certifications reasonably required by disposal sites, provided that the disposal site has been or is audited by MHC and deemed acceptable to MHC in its discretion. . . .
9. The Brownfield Agreement provides that Route 21 shall be entitled to reimbursement of up to 75% of all approved costs. . . . MHC agrees to reimburse Route 21 for the remaining 25% of necessary and proper response or remediation costs incurred by Route 21.
AR 9, Ex. E. To summarize: Route 21 agreed to (1) complete the remedial investigation for the groundwater and obtain approval of a RAW, regardless of the closing of a contemplated sale of the property to Lowe's, and (2) implement the RAW for groundwater up until such time as the sale to Lowe's or some other transferee was completed. The debtor, on the other hand, agreed to
(1) reimburse Route 21 for the 25% of its approved costs which Route 21 was responsible for under its agreement with NJDEP, (2) take on responsibility for maintaining monitoring wells and certain other facilities, (3) sign certifications required by off-site disposal sites, and (4) in the event that the sale to Lowe's were to close, assume responsibility for completing the RAW for groundwater and obtaining a "No Further Action" letter.
The sale to Lowe's never closed. Route 21 still owns the property. AR 9 at 19; Appellant Br. 21; Tr. 31--32.
On January 6, 2009, the debtor filed a voluntary chapter 11 petition.
On June 26, 2009, Route 21 filed a proof of claim against the debtor's estate, seeking $1,049,497.10 as an administrative expense. AR 16. That claim consisted of: (1) $533,762.10, representing 25% of the costs approved by NJDEP for Route 21's soil remediation work as of January 5, 2009; (2) $261,569, representing 25% of the costs incurred by Route 21 on the preliminary groundwater work; and (3) $254,166, representing costs incurred by Route 21 on account of the disposal sites chosen by MHC.*fn4 Id.; see also Tr. 18--23. In the rider attached to this claim, Route 21 specified that it was continuing to perform its duty to remediate the groundwater, and that its preliminary estimate of that cost was $6.6 million, of which the debtors would be responsible for $1.65 million. Id. Route 21 also asserted that the agreements between it and the debtor were executory. Id.
On June 29, 2009, NJDEP filed a proof of claim against the debtor's estate for more than $19 million in environmental clean-up costs that it had incurred or will incur at a number of sites, including the site at issue here. AR 17.
On March 30, 2010, Route 21 submitted its completed remedial investigation and proposed RAW to NJDEP. NJDEP approved the plan on February 21, 2011. AR 9, Ex. J.
On April 16, 2010, Judge Gerber approved a stipulation between Route 21, NJDEP, and the debtor's corporate parent, under which the parties agreed that "[i]f any claims are allowed on account of the Debtor's alleged environmental liability in relation to [the Site], which Debtor disputes, the allowed claim(s) shall be treated as one claim." AR 5 ¶ 1. Route 21 and NJDEP agreed that if any such claim were allowed, they would "agree between themselves as to the allocation of any such distribution." Id. ¶ 2. Route 21 reserved the right to amend its claims, and the debtor reserved the right to raise claim objections. Id. ¶¶ 3--4.
On April 23, 2010, Judge Gerber approved the Third Amended and Restated Joint Chapter 11 Plan of Reorganization for the LyondellBasell Debtors (the "Plan"); it became effective on April 30, 2010. AR 22. Under the Plan, the Millennium Custodial Trust (the "Trust") was formed. Id. § 5.5. The Trust became the parent of certain former debtor affiliates of Lyondell, including MHC. The Trust was tasked with liquidating the assets of these debtors, and it was given authority to file objections to proofs of claims. Id. Under the Plan, MHC rejected many of its executory contracts, including the agreements at issue here.*fn5 Id. § 9.1.
On January 5, 2011, Route 21 filed a second proof of claim, amending its initial claim to seek $1,133,526.66, also as an administrative expense.*fn6 AR 7. It is unclear what accounts for the $84,029.56 difference between this claim and Route 21's initial claim, because the riders to the two claims are identical. Compare id., with AR 16. However, according to Route 21, the additional costs reflect expenses incurred by Route 21 between the filing of its initial claim and September 2009. AR 11 at 9; AR 12 at 29. Therefore, at least some of the expenses claimed by Route 21 were incurred after the filing of the petition. In Route 21's amended claim, it reiterated that its estimated cost of the debtor's share of remediation work was $1.65 million, and that the agreements between it and the debtor were executory. AR 7.
On April 28, 2011, the Trust, on behalf of the debtor, objected to both of Route 21's claims. AR 8. On May 12, 2011, Route 21 filed a response and a cross-motion seeking specific performance of the agreements. AR 9.
On June 28, 2011, NJDEP's claim was allowed as a general unsecured claim for $3,034,195. See AR 25 at 2.
B. The Bankruptcy Court's Decision
On September 23, 2011, Judge Gerber held a hearing on Route 21's claims and the Trust's objections to them. AR 12 (transcript of hearing). On April 17, 2012, Judge Gerber issued his bench opinion. AR 13 (transcript of opinion) ("Op.").
First, Judge Gerber denied Route 21's cross-motion for specific performance. He found that the agreements between Route 21 and the debtor, including as to the future clean-up of the Site, were executory contracts that had been deemed rejected by the debtor. Judge Gerber rejected Route 21's argument that the debtor should nonetheless be compelled to perform the agreements. Op. 6--11.
Second, Judge Gerber found that no part of Route 21's claim is entitled to administrative priority, because the agreements were pre-petition transactions that do not provide a direct benefit to the debtor's post-petition estate. Op. 11--17.
Finally, Judge Gerber allowed Route 21's general unsecured claim for costs already incurred in cleaning up the Site. The parties later stipulated that these costs total $1,019,358.40. AR 15 at 2. However, Judge Gerber disallowed Route 21's claims for costs not yet incurred or paid. He found that such costs are contingent claims for reimbursement, on which Route 21 is co-liable with the debtor. Op. 17--25.
On May 18, 2012, Judge Gerber issued an Order reflecting these rulings. AR 15. Route 21 filed a ...