SW Legal studies in Business

Environmental Lien Not Stayed by Filing Bankruptcy
Description Appeals court affirmed that a lien filed against property to help secure the recovery of costs for the cleanup of an environmental hazard on debtor's property was exempt from the automatic stay that applied to most liens once bankruptcy is filed. Congress intended for such environmental liens to take priority over earlier perfected liens.
Topic Bankruptcy
Key Words Exceptions; Lien; Environmental Damage
C A S E   S U M M A R Y
Facts Debtor, 229 Main Street, owns a shopping center in Natick, Massachusetts. For many years, a dry cleaner leased space in the center, resulting in significant pollutants to the property that threatened the drinking water of Natick. The state spent a large sum on emergency cleanup activities under the Massachusetts Oil and Hazardous Materials Prevention Act, then sought reimbursement for the expenses from the debtor. The state told 229 that it intended to record a lien against the property to help recover cleanup costs. 229 denied responsibility and demanded a hearing on the matter. Before that hearing occurred, 229 filed a voluntary bankruptcy petition under Chapter 11. The primary reason for the filing was to avoid perfection of the lien. The hearing officer ruled that the environmental lien statute fell within an exception to the automatic stay of bankruptcy and imposed the lien. The bankruptcy court upheld the lien, as did the court. 229 appealed.
Decision

Affirmed. The state's actions created an "interest in property" before 229 filed bankruptcy, which is exempted from automatic stay. The Bankruptcy Code provides exception for stay to such interests, as Congress intended in the statute for this kind of environmental lien to take priority over earlier perfected interests.

Citation In re 229 Main Street Limited Partnership, 262 F.3d 1 (1st Cir., 2001)

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