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Litigating Complex Environmental Cases

By Robert Sidorsky

In a series of recent decisions, the bankruptcy court for the Southern District of New York has broadly interpreted section 502(e)(1)(B) of the Bankruptcy Code in disallowing substantial claims arising in the context of: 1) liability for environmental remediation; or 2) complex environmental tort litigation that often ensues in cases of longstanding environmental pollution or contamination. Thus, section 502(e)(1)(B) has proven an effective, although arguably controversial, mechanism in limiting the liability of debtors for claims for contribution or indemnity by co-liable parties both under the statutory mechanism of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ” 9601 et seq. (CERCLA), and under state common law governing claims for contribution and indemnification.

Accordingly, the application and potential consequences of section 502(e)(1)(B) need to be evaluated by each of the parties to significant multi-party environmental litigation in which one of the defendants or potential defendants has filed for bankruptcy or a bankruptcy filing is a strategic consideration in limiting liability for exposure to the costs of remediation and/or litigation.

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