Mark IV Ruling: District Court Affirms Bankruptcy Court’s Denial of Discharge of Environmental Obligations

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Last month, District Court Judge Shira A. Scheindlin of the Southern District of New York affirmed a bankruptcy court ruling which held that the environmental cleanup obligations of debtor Mark IV Industries, Inc. were not discharged in bankruptcy. Given the current legal landscape, Mark IV may make the likelihood of discharging environmental claims even more difficult, potentially undermining chapter 11 as an optimal alternative for companies saddled with environmental liabilities. In light of the importance of the issues involved, Mark IV will likely appeal Judge Scheindlin’s decision to the Second Circuit.

BACKGROUND

When automotive parts manufacturer Mark IV Industries, Inc. and its affiliates (collectively, “Mark IV”) filed chapter 11 bankruptcy proceedings in 2009, the company had been engaged in environmental cleanup efforts at a former manufacturing site in New Mexico for over 13 years. Despite years of cleanup efforts, Mark IV had been told by the New Mexico Environmental Department (“NMED”) that a plume of contamination was still spreading at the site, requiring continuing cleanup obligations. Mark IV brought an adversary proceeding seeking a declaratory judgment that its obligation to clean up the site was discharged in bankruptcy. Bankruptcy Judge Stuart M. Bernstein denied Mark IV’s request, holding that the debtor’s environmental obligation regarding the New Mexico cleanup site did not constitute a “claim” in bankruptcy and was therefore not dischargeable.

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