STATE OF OHIO, PETITIONER V. WILLIAM LEE KOVACS No. 83-1020 In the Supreme Court of the United States October Term, 1983 On Writ of Certiorari To the United States Court of Appeals For the Sixth Circuit Brief For the United States As Amicus Curiae Supporting Petitioner TABLE OF CONTENTS Interest of the United States Statement Summary of argument Argument: A bankrupt polluter may not seek refuge in the Bankruptcy Code to escape an injunction that requires him to clean up a hazardous waste disposal site Conclusion QUESTION PRESENTED Whether the discharge provisions of the 1978 Bankruptcy Code, 11 U.S.C. 524 and 727, operate to excuse a bankrupt polluter from a state court injunction requiring him to remove hazardous wastes from a dumpsite. INTEREST OF THE UNITED STATES Like its predecessor, Kovacs I, /1/ this case presents an important question about the use of the 1978 Bankruptcy Code to impede the ability of state and federal governments to safeguard public health and safety by enforcing environmental protection statutes. In this instance, the issue is whether a bankrupt defendant may rely on the discharge provisions of the Bankruptcy Code, 11 U.S.C. 524 and 727, to void an injunction that requires him to clean up a hazardous waste disposal site. The problem extends beyond state enforcement actions. It also arises when the United States seeks to enforce clean-up obligations imposed by federal law, including the Clean Water Act, 33 U.S.C. 1251 et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (Supp. V) 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (Supp. V) 9601 et seq.; the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. 1201 et seq.; and the Clean Air Act, 42 U.S.C. (Supp. V) 7401 et seq. Even as it bears on local enforcement efforts, the decision below implicates the national commitment to a safer environment by encouraging offenders to file for bankruptcy, and thereby excuse themselves from performing orders that require them to abate the health hazards they have created. /2/ STATEMENT 1. Prior to filing his petition in bankruptcy, the respondent, William Kovacs, had been engaged in the business of industrial and hazardous waste disposal in Ohio. His business was "quite profitable," and his "corporate empires" dealt in "large sums of money" (Pet. App. A55). In 1976, the State of Ohio sued Kovacs as an individual and as the officer of several bussiness entities, including the Chem-Dyne Corporation, for alleged violations of various state environmental laws. Among other things, the State's complaint charged that Kovacs and his corporations had improperly deposited the carcinogenic pesticides endrin, dieldrin, and heptaclor at the Chem-Dyne site in Hamilton, Ohio, and that those wastes were leaking into the Great Miami River and its tributary, polluting the water, killing fish and wildlife, and destroying natural resources. In response to the lawsuit, Kovacs signed a stipulation and judgment entry in the Butler County Common Pleas Court (id. at A43-A51). Kovacs himself stipulated that approximately 850,000 gallons of liquid wastes and 4,000 barrels of solid and semi-solid sludges remained at the Chem-Dyne site (id. at A45). In the stipulated judgment, Kovacs agreed not to cause further pollution, to remove all hazardous wastes from the premises of the Chem-Dyne Corporation within one year (by July 1980), and to pay $75,000 to the Ohio Department of Natural Resources as compensation for damage to the State's natural resources (id. at A46-A47, A48-A50). Kovacs failed to comply with any portion of the stipulated judgment (Pet. App. A53-A54); indeed, not only did he fail to pay the $75,000 monetary judgment and fail to clean up the Chem-Dyne site, but he brought additional wastes onto the site (id. at A54). Accordingly, Ohio returned to state court in January 1980, requesting the appointment of a receiver to implement the stipulated order. After taking evidence at a hearing, the state court found that Kovacs had acted "in flagrant disregard of the Stipulation and Judgment Decree" (ibid.). Because Kovacs' activity "definitely affects this entire community and conceivably the water for this entire area as well as the wild life, natural resources of the area, and the fish in the streams" (id. at A55), the state court appointed a receiver to collect Kovacs' non-exempt assets and use them to finance the costs of clean-up at the Chem-Dyne site (J.A. 4-16). /3/ Subsequently, in July 1980, Kovacs filed a personal petition in bankruptcy in the United States Bankruptcy Court for the Southern District of Ohio. In re Kovacs, Bankr. No. B-1-80-1499. /4/ In an effort to ensure the availability of adequate funds to implement the clean-up order, Ohio sought a state court hearing on Kovacs' current employment status and income. Kovacs thereupon moved the bankruptcy court to enjoin Ohio from proceeding in state court. He argued that the State's goal was to obtain an order permitting the state court receiver to use Kovacs' post-bankruptcy income to satisfy the unfulfilled obligation to clean up the Chem-Dyne site and that such an order would violate the automatic stay provision of 11 U.S.C. 362. The bankruptcy court agreed (J.A. 23-32). 2. The bankruptcy court readily acknowledged that neither the clean-up order nor the order imposing the receivership gave the State a money judgment with respect to cleaning up the Chem-Dyne premises (J.A. 28). /5/ Nonetheless, the bankruptcy court enjoined the State from proceeding in state court "to levy on" Kovacs' post-filing wages (J.A. 32). It reasoned that "there is no difference in substance between efforts to collect money from a debtor by securing a court order, and efforts to enforce a money judgment against him * * * (and) therefore, that the State is estopped to deny that it is not (sic) seeking to enforce a money judgment against debtor" (J.A. 28). The State appealed to the United States District Court for the Southern District of Ohio, which affirmed. The district court, too, found that the State sought to collect money "just as though it were enforcing a money judgment" (J.A. 20). Accordingly, the district court held the automatic stay applicable "because the state's effort is clearly to enforce a judgment obtained before the filing of the Bankruptcy petition" (ibid.). 3. The Sixth Circuit affirmed in Kovacs I, 681 F.2d 454 (1982). The court concluded that, while Section 362(b) clearly permitted governmental units to continue to enforce their police powers through mandatory injunctions despite the filing of a bankruptcy petition, it denied them the power to collect money in their enforcement efforts (681 F.2d at 456). Like the two lower courts, the court of appeals also believed that Ohio had returned to state court in pursuit of what "in essence" amounted to a money judgment against Kovacs, which was "properly" subject to the automatic stay (ibid.). Concerned that the state court had ordered Kovacs to release all non-exempt assets, including money payable to himself in the future, the Sixth Circuit could find "little in substance to distinguish that order and a money judgment" (ibid.). It concluded that Ohio's attempt to reach Kovacs' post-bankruptcy earnings would "subvert" the purpose of the Bankruptcy Code to rehabilitate debtors "and to give them relief from harassing creditors" (ibid.). 4. Subsequently, this Court granted Ohio's peititon for a writ of certiorari in Kovacs I, vacated the judgment, and remanded the case to the Sixth Circuit "to consider the question of mootness" (No. 82-815 (Jan. 24, 1983)). At that time, an appeal was pending in the Sixth Circuit from the lower courts' determination that the state court clean-up injunction would be voided by a discharge under the Bankruptcy Code. It is that determination that gives rise to the instant case. /6/ 5. On October 20, 1980, the State of Ohio filed a complaint in the bankruptcy court seeking a declaration that the obligations imposed on Kovacs by the consent decree and the state court injunction -- to remove and dispose of industrial and other wastes at the Chem-Dyne site -- could not be discharged in bankruptcy (Pet. App. A29-A37). The State argued that because the injunction did not constitute a "claim" or "debt," the duty to comply with it could not be discharged in bankruptcy. See 11 U.S.C. 101(4), 101(11), 524, 727(b). /7/ The bankruptcy court extended the reasoning of its earlier decision that the automatic stay prevented the State from enforcing the injunction and held that because Kovacs would have to spend money in order to comply with the injunction, Kovacs "owes plaintiff a debt" that is dischargeable (Pet. App. A22). The court also ruled that only those debts listed within the exceptions to the discharge, 11 U.S.C. 523, could survive bankruptcy (Pet. App. A22). 6. The United States District Court for the Southern District of Ohio affirmed (Pet. App. A11-A16). It concluded that "under the law of the case principles, we must accept the determination of the Sixth Circuit that the State was seeking what amounted to a money judgment against Kovacs" (id. at A15). /8/ Thus, perceiving the State's attempt to enforce the injunction as a request for a monetary payment, the district court deemed the request a dischargeable "claim" or "debt" (ibid.). 7. The Sixth Circuit again affirmed (Pet. App. A1-A10). That court, like the district court and the bankruptcy court, ruled that efforts to force Kovacs to comply with the clean-up injunction by turning his income over to the state court receiver could not be distinguished from an attempt by the State to collect an "alternate right to payment" on a dischargeable "claim" (id. at A9). Though it recognized that there was no law of the case to apply since this Court had vacated the decision in Kovacs I, the Sixth Circuit expressly readopted the reasoning of its earlier opinion: "Ohio is essentially seeking to obtain a money payment from Kovacs" (Pet. App. A10). Like the bankruptcy court, the court of appeals suggested that only those debts listed within the Section 523 exceptions could survive a discharge (ibid.). SUMMARY OF ARGUMENT The court of appeals' decision improperly releases Kovacs from a mandatory injunction authorized by statute to protect public health and safety. By propounding an expansive definition of "money judgment" in Kovacs I, and then extending that same faulty approach in Kovacs II, the court eviscerated the difference between a dischargeable right to payment for a breach of performance and a non-dischargeable right to enforce an injunction that entails the expenditure of money. The consequence is that a preexisting obligation to clean up a hazardous waste disposal site -- incorporated in a final judgment -- has been wholly excused. /9/ By encouraging abuse of the Bankruptcy Code to void obligations under state and federal environmental laws, the decision below flouts Congress's express intent to preserve the ability of governmental units to protect public health, safety, and the environment. Indeed, the decision effectively destroys the government's ability to enforce any statutory obligation -- whether it be a regulation, permit, or clean-up injunction -- against any bankrupt if compliance entails any expense by the debtor or its estate. This result finds no support in the Bankruptcy Code. The Code does not shield wrongdoers from all consequences of their actions; there is no fundamental or inalienable right to obtain a discharge in bankruptcy at the expense of the legislatively declared right of the public to be safe from environmental pollution. ARGUMENT A BANKRUPT POLLUTER MAY NOT SEEK REFUGE IN THE BANKRUPTCY CODE TO ESCAPE AN INJUNCTION THAT REQUIRES HIM TO CLEAN UP A HAZARDOUS WASTE DISPOSAL SITE 1. a. Because the present decision expressly builds on Kovacs I, and because the automatic stay provision of the Bankruptcy Code, 11 U.S.C. 362, "is the first part of bankruptcy relief" ultimately culminating in discharge (H.R. Rep. 95-595, 95th Cong., 1st Sess. 125 (1977)), it is appropriate to begin the analysis in this case with consideration of the automatic stay as it affects governmental actions to enforce police or regulatory powers. In general, the commencement of a bankruptcy action operates as a stay of all judicial or administrative proceedings against the debtor or its estate that were or could have been commenced prior to the filing of the bankruptcy petition. 11 U.S.C. 362(a)(1). The automatic stay also bars the enforcement against the debtor or its estate of a judgment obtained prior to the filing of the bankruptcy petition. 11 U.S.C. 362(a)(2). Importantly, however, certain governmental litigation is wholly or partially exempt from the automatic stay. Section 362(b)(4) of the Code provides that the filing of a bankruptcy petition does not stay "the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory powers." For purposes of subsection (b)(4), it matters not what relief the government seeks: the government may commence or continue any police or regulatory action. Subsection (b)(5), on the other hand, specifies which judgments the government may not then seek to execute -- ordinary money judgments. In the present case, there is no doubt that the state court order was obtained pursuant to Ohio's police or regulatory powers. The legislative history is unambiguous that the automatic stay does not apply to halt the commencement and continuation of environmental protection actions. /10/ The only question, therefore, is whether the state court order sought to be enforced is a "money judgment" that cannot be executed without leave from the bankruptcy court. Neither the Bankruptcy Code nor its legislative history specifically define the term "money judgment." Congress did, however, explain that subsection (b)(5) excluded money judgments from the governmental exemption in order to prevent the government from receiving preferential treatment at the expense of other creditors. /11/ Obviously, when the government's interest in executing a judgment is essentially pecuniary, then its interest is akin to that of other creditors. The government's interest would be predominantly pecuniary, for example, if it sought to collect damages for injury to its property or natural resources (see page 3 & note 5, supra). In that case, there would be little justification for granting the government preferential treatment. By the same token, when the thrust of the government's action is not to collect money from the debtor but rather to protect the public health and safety, then the government does not stand in the shoes of an ordinary creditor. In short, when considering the applicability of the exemption to a given judgment, a court must initially scrutinize the governmental interest at stake in the litigation. The mere fact that a judgment entails the expenditure of money does not automatically remove it from the (b)(5) exemption. b. Many injunctions entail the expenditure of money for their performance. See Penn Terra Ltd. v. Dep't of Environmental Resources, No. 83-5448 (3d Cir. Apr. 30, 1984), slip op. 23; United States v. Price, 688 F.2d 204, 213 (3rd Cir. 1982). A defendant may be ordered to conduct or fund a study to determine the extent of the threat posed by its waste disposal practices, e.g., Price; to reclaim areas damaged by surface mining operations, e.g., Penn Terra; to remove leaking drums of toxic wastes that threaten groundwater contamination, e.g., Kovacs; to remove industrial wastes previously deposited in navigable waters, e.g., United States v. Republic Steel Corp., 362 U.S. 482, 490-493 (1960); to operate its plant in compliance with environmental regulations, e.g., Commonwealth v. Peggs Run Coal Co., 55 Pa. Commw. 312, 423 A.2d 765 (1980). In each case, when the government seeks to enforce the order, its aim is to protect the public health, not to enhance the public fisc. Virtually every court to consider the issue has concluded that actions such as those noted above are exempt from the automatic stay and that the judgments may be executed even if they entail the expenditure of substantial funds. Thus, for example, in a case virtually identical to Kovacs I, Pennsylvania had obtained a state court order mandating remedial action by the operator of surface coal mines; among other things, the state court order required the company to reclaim the mines, implement soil erosion and sedimentation control plans, and restore and revegetate the mined area to its original contour. Penn Terra Ltd., slip op. 4-5 n.2. Thereafter, Penn Terra filed for bankruptcy under Chapter 7 of the Code. The bankruptcy court and the district court held that Pennsylvania's attempts to enforce the state court injunction were barred by the automatic stay's application to governmental efforts to enforce "money judgments" (11 U.S.C. 362(b)(5)). The Third Circuit reversed, rejecting the argument that "a money judgment is anything which costs money to enforce" (slip op. 21). The court reasoned (slip op. 23 (footnote omitted)): Were we to find that any order which requires the expenditure of money is a "money judgment," then the exception to section 362 for government police action, which should be construed broadly, would instead be narrowed into virtual nonexistence. Yet we cannot ignore the fundamental fact that, in contemporary times, almost everything costs something. An injunction which does not compel some expenditure or loss of monies may often be an effective nullity. The Penn Terra court also explained that the result it reached was most faithful to Congress's intent to accommodate the competing interests at stake (slip op. 23-24): It appears that * * * the Bankruptcy Court * * * placed too much weight on the value of preserving the corpus of the debtor's funds and estate under its own exclusive control. Admittedly, that goal is normally central to the statutory scheme of the Bankruptcy Code. * * * (I)n some instances this policy is in inexorable conflict with other, no less salutary, governmental goals. We believe that the resolution of this conflict is contained in the statute itself. In enacting exceptions to section 362, Congress recognized that in some circumstances, bankruptcy policy must yield to higher priorities. Indeed, if the policy of preservation of the estate is to be invariably paramount, then one could not have exceptions to the rule. Since Congress did provide for exceptions, however, we may safely assume that the goal of preserving the debtor's estate is now always the dominant goal. The court concluded by employing the same analysis we urge here, focusing on the governmental interest advanced by the litigation rather than the effect on the debtor's purse. If the governmental action is intended "to prevent future harm to, and to restore, the environment" (slip op. 24), then it is not an action to enforce a money judgment of the sort barred by Section 362(b)(5). /12/ Similarly, in another case closely analogous to Kovacs I on its facts, the Commonwealth Court of Pennsylvania found the governmental action excempt from the bankruptcy stay. Commonwealth v. Peggs Run Coal Co., 55 Pa. Commw. 312, 423 A.2d 765 (1980). There, Pennsylvania sued the owner of a coal mine and cleaning plant for alleged violations of various state environmental statutes. The complaint requested both a mandatory injunction ordering compliance with the laws and the posting of bonds to assure compliance with the injunction. The coal company, having filed a petition in bankruptcy, invoked the automatic stay provision of the Bankruptcy Code to block the state's action. After analyzing the legislative history, the Pennsylvania court concluded that the state was not attempting to enforce a money judgment. The court therefore held the proceeding excempt from the automatic stay. 423 A.2d at 767. /13/ In non-environmental cases as well, the courts have upheld governmental authority to enforce injunctions that entail the expenditure of money, notwithstanding the Code's automatic stay provision. Thus, for example, in Donovan v. TMC Industries, Ltd., 20 Bankr. 997 (N.D. Ga. 1982), the district court held that the Bankruptcy Code could not be invoked to stymie the government's efforts to enforce payment of minimum wages required by the Fair Labor Standards Act because that Act "promote(s) public health and welfare." Id. at 1005. The court therefore enjoined the bankrupt employer from shipping goods produced at sub-minimum wages. Fully recognizing that the employer could remedy the statutory violation and satisfy the injunction only by paying minimum wages for the production of those goods, id. at 1000, 1006, the court specified the manner in which the employer should set aside funds sufficient to remove the taint from its merchandise. Even though its order entailed the payment of money by the bankrupt into a trust fund, the court stressed that "(t)his is not a money judgment. Failure to comply with this Order cannot result in execution or levy." Id. at 1007. As the court observed, the purpose of the government's request for an injunction was not to enforce wage claims of underpaid workers in a single firm, but to safeguard "the welfare of every worker in that firm as well as the workers in competing companies" (id. at 1006) by the only means available, namely, by halting shipment to market of "tainted goods" in order to reduce the impact of substandard wages on an "entire industry." Ibid. /14/ c. It is thus clear that many governmental actions, even if they entail the expenditure of substantial funds, are exempt from the Code's automatic stay. /15/ Congress has made a policy judgment that these actions are too important to be held up for the many years that may be required to bring a bankruptcy case to completion. /16/ As we now show, it would be anomalous indeed to hold that an action such as the present one is exempt from the automatic stay, which it clearly is, but to rule years later that the debtor's obligation is dischargeable in bankruptcy. Instead, the same factors that support the determination that enforcement of the judgment at issue should not have been stayed by the filing of the bankruptcy petition likewise support the conclusion that Kovacs' obligations under the state court injunction are not dischargeable. 2. A discharge under the Bankruptcy Code operates to erase a bankrupt's debt. 11 U.S.C. 524(a). The Code defines "debt" as "liability on a claim." 11 U.S.C. 101 (11). Although the term "claim" is defined broadly, 11 U.S.C. 101(4), it explicitly excludes from its embrace the type of injunction at issue here. Two classes of rights are dischargeable in bankruptcy: (1) any right to payment, and (2) a right to an equitable remedy for breach of performance if such breach itself gives rise to a right to payment. 11 U.S.C. 101(4). The clean-up injunction here does not redress a breach of performance, nor does it operate as an alternative to a right to payment. Rather, it orders compliance with state statutes by requiring the abatement of a public health and environmental hazard. a. The legislative evolution of the definition of "claim" demonstrates conclusively the agreement of both Houses of Congress that a bankruptcy discharge would not extinguish rights to all equitable remedies. As originally proposed, the definition of "claim" included "an equitable right to performance that does not give rise to a right to payment." H.R. Rep. 95-595, supra, at 309 (emphasis added). See H.R. 8200, 95th Cong., 1st Sess. (1977). During the course of debate and amendments, both Houses narrowed the breadth of the definition. As explained by one of the bill's sponsors, Representative Edwards (124 Cong. Rec. 32393 (1978) (emphasis added)): Section 101(4)(B) represents a modification of the House-passed bill to include (in) the definition of "claim" a right to an equitable remedy for breach of * * * performance if such breach gives rise to a right to payment. This is intended to cause the liquidation or estimation of contingent rights of payment for which there may be an alternative equitable remedy with the result that the equitable remedy will be susceptible to being discharged in bankruptcy. For example, in some States, a judgment for specific performance may be satisfied by an alternative right to payment, in the event performance is refused; in that event, the creditor entitled to specific performance would have a "claim" for purposes of a proceeding under title II. On the other hand, rights to an equitable remedy for a breach of performance with respect to which such breach does not give rise to a right to payment are not "claims" and would therefore not be susceptible to discharge in bankruptcy. /17/ As enacted, Section 101(4)(B) limits the definition of "claim" by excluding any right to an equitable remedy for a breanch of performance when the breach does not also give rise to an alternative right to payment. /18/ The clean-up injunction at issue here plainly lies within the class of equitable rights excluded from the definition of "claim," and thereby preserved from discharge in bakruptcy. /19/ The state court's order required Kovacs to remove and dispose of all industrial and hazardous wastes at the dumpsite; the order did not redress a breach of performance or compensate the State for any pecuniary loss or otherwise satisfy any right to payment. That the injunction did not operate as a money judgment is obvious from the fact that the court separately ordered Kovacs to pay the State some $75,000 for damage to the State's natural resources. The district court readily acknowledged that the Ohio statutes authorizing the clean-up injunction did not provide the State with an alternative right to a money payment (Pet. App. A14-A15). See Pet. 22. The court of appeals made no contrary finding. Instead, to determine whether the clean-up injunction was a "claim" that could be discharged in bankruptcy, the Sixth Circuit bypassed the statutory definition and reverted to the simplistic test formulated in Kovacs I: if the injunction entails the expenditure of money, then it must be a right to payment which is a dischargeable claim. See Pet. App. A9-A10. By this faulty logic, equating mandatory injunctions with money judgments, the court of appeals read the injunctive relief provisions out of a host of environmental statutes and thereby robbed the government of a vital tool for protecting public health and the environment from environmental violations. A plethora of federal statutes all include provisions in which Congress explicitly authorized courts to issue mandatory injunctions to clean up or otherwise abate health, safety, and environmental hazards. /20/ Here, Ohio invoked an analogous injunction provision from its own body of environmental legislation. The court below cavalierly suggested (Pet. App. A9-A10) that the State may pursue other remedies against Kovacs, such as penalties and criminal sanctions. But, of course, penalties and sanctions merely complement orders to abate a threat to public health and safety caused by environmental pollution; they do not accomplish a clean-up. Effective protection for the public depends on the ability of state and federal governments to enforce their respective environmental protection, damages to compensate for pecuniary loss or harm to natural resources, fines, and penalties each serve a distinct function in the scheme of statutory remedies available to governmental units. The court of appeals' failure to appreciate this fact led it to err. b. The court below mistakenly assumed that the significance to Ohio of the consent decree and injunction is that Kovacs "'pay compensation * * * for pecuniary loss'" (Pet. App. A7 (emphasis in original; citation omitted)). As we have discussed in connection with the automatic stay, this approach obliterates the distinction between a money judgment for compensation and an injunction ordering the abatement of a health and safety hazard, when such abatement entails the expenditure of funds. Only the latter is at issue here. In the present case, the state court's orders were strictly preventive, not compensatory. Initially, the court ordered Kovacs himself to clean up the dumpsite. Only subsequently, upon the State's showing that Kovacs had not complied, did the state court order Kovacs to release certain assets and future earnings to the court-appointed receiver. Although this latter order directed the payment of money by Kovacs to the receiver, the receivership was established for the limited purpose of implementing the clean-up order. Accordingly, both orders, each directed to clean-up of the dumpsite, must be distinguished from traditional money judgments. /21/ The Third Circuit expressly recognized this distinction in Penn Terra Ltd., slip op. 24: We believe that the inquiry is more properly focused on the nature of the injuries which the challenged remedy is intended to redress -- including whether plaintiff seeks compensation for past damages or prevention of future harm -- in order to reach the ultimate conclusion as to whether these injuries are traditionally rectified by a money judgment and its enforcement. Here, the Commonwealth Court injunction was, neither in form nor substance, the type of remedy traditionally associated with the conventional money judgment. It was not intended to provide compensation for past injuries. It was not reduceable to a sum certain. No monies were sought by the Commonwealth as creditor or obligee. The Commonwealth was not seeking a traditional form of damages in tort or contract, and the mere payment of money, without more, even if it could be estimated, could not satisfy the Commonwealth Court's direction to complete the backfilling, to update erosion plans, to seal mine openings, to spread topsoil, and to implement plans for erosion and sedimentation control. Rather, the Commonwealth Court's injunction was meant to prevent future harm to, and to restore, the environment. In sum, remedial orders obtained under the endangerment provisions of environmental statutes may require the expenditure of money either directly or indirectly. Nevertheless, such remedial orders do not compensate the government for harm or expenses incurred. Their objective is, rather, to protect the public by assuring compliance with environmental laws and by ordering abatement of health and environmental hazards. The court of appeals' view of the relationship between the Bankruptcy Code and governmental enforcement actions, as formulated in Kovacs I and readopted in Kovacs II, improperly ignores the purpose of the governmental action and focuses exclusively on the impact of the governmental action on the debtor's purse. That approach cripples the government's ability to exercise its police powers to protect public health, safety, and the environment, and it finds no support in the Bankruptcy Code. 3. The decision below ignores the fact that the Bankruptcy Code is not a safe haven for wrongdoers. See S. Rep. 95-989, 95th Cong., 2d Sess. 51 (1978); H.R. Rep. 95-595, supra, at 342. Although the general policy of the Code is to provide a "fresh start" for those in financial difficulty, nowhere in the Code did Congress suggest an intent to grant "pardons" to those who have violated the law or jeopardized the public health and safety. A series of analogous cases demonstrate the error of the court of appeals' contrary conclusion. a. The courts have consistently held that a bankrupt defendant's obligation to pay criminal restitution -- whether ordered by another court before or after the petition in bankruptcy -- survives discharge. E.g., United States v. Carson, 669 F.2d 216 (5th Cir. 1982); In re Magnifico, 7 Collier Bankr. Cas. 2d 258 (Bankr. D. Ariz. 1982); In re Newton, 15 Bankr. 708 (Bankr. N.D. Ga. 1981). Criminal restitution orders require bankrupt defendants to make payments to persons, the victims, who could not themselves bring civil actions against the defendants due to the Bankruptcy Code. The courts have uniformly held criminal restitution actions and orders immune from the Bankruptcy Code on the ground that the government's action is undertaken in the public interest, whether it be to protect the public by deterring criminal conduct or to rehabilitate criminal offenders. /22/ The analysis focuses on the purpose of the governmental action -- not the fact that the restitution order requires a bankrupt to spend money. United States v. Carson, 669 F.2d at 217. See also Barnette v. Evans, 673 F.2d 1250, 1251 (11th Cir. 1982) (overturning bankruptcy court's stay of criminal restitution proceedings on ground that public interest in such proceedings "overrides any interest the bankruptcy court may have in protecting the financial interest of debtors"); In re Lare, 7 Collier Bankr. Cas. 2d 394 (Bankr. D. Md. 1982) (court refused to stay criminal prosecution that included a request for a fine because suit aimed to protect public, not simply to obtain payment). The same analysis should have been applied in Kovacs II. Here, too, the government's action was undertaken in the public interest to protect public health and safety, not to exact money from Kovacs. b. In other contexts, too, bankruptcy courts have found the public interest paramount to the debtor's interest in a "fresh start" under the Bankruptcy Code. Especially pertinent is the decision in In re Canarico Quarries, Inc., 466 F. Supp. 1333 (D.P.R. 1979). There, the district court overturned a bankruptcy court's order prohibiting the Puerto Rico Environmental Quality Board from enforcing regulations under the federal Clean Air Act against the debtor. The district court held that although the bankruptcy laws strive to promote the rehabilitation of debtors, such rehabilitation must be done within the law. Thus, the debtor must comply fully with state and federal environmental regulations, even though such compliance may be costly. /23/ Similarly, in In re Charles George Land Reclamation Trust, 8 Collier Bankr, Cas. 2d 1307 (Bankr. D. Mass. 1983), the court dismissed the bankruptcy petition of a polluter to permit the state and federal governments to proceed with actions to take control of the bankrupt's property in order to protect public health and the environment from an environmental emergency. Hazardous substances disposed of by the bankrupt were leaking from his property into waters that fed a public drinking water supply. "The ongoing violation of state law and the serious and immediate danger posed to the citizenry in the surrounding area by these violations, mandated that the Federal and State environmental agencies be given full and complete control of the hazardous waste site as soon as possible." Id. at 1313. /24/ Finally, in a decision that preceded the 1978 Bankruptcy Code, the Fourth Circuit denied the request of a bankruptcy trustee to abandon useless, dilapidated barges floating in a harbor and ordered the trustee to remove the barges at the expense of the estate. Ottenheimer v. Whitaker, 198 F.2d 289 (4th Cir. 1952). "There can be no doubt that the property not only has no value, but also that the care and disposition of it will involve the expenditure of a substantial sum of money. * * * (Nonetheless,) we are not dealing with a burden imposed upon the bankrupt or his property by contract, but a duty and a burden imposed upon an owner of vessels by an Act of Congress in the public interest." Id. at 290. As in all of these cases, so here, the ability of the government to exercise its police power to protect the public must not be extinguished solely because it results in an expense for the debtor. 4. The decision below improperly offers bankrupt polluters a "fresh start" without regard for public health, safety, and the environment. According to the logic of the Sixth Circuit's opinion, had Kovacs created a nuisance in his backyard small enough that he personally could sweep it up without the help of equipment or technicians, then a clean-up injunction would be enforceable against him. But because Kovacs created a public health hazard so extensive and so dangerous that safe clean-up requires him to employ independent, experienced contractors, the court will not order Kovacs to satisfy this costlier injunction. Ironcially, the decision below provides that the more dangerous the environmental violation, the easier it will be for the polluter to avoid responsibility. The Bankruptcy Code, however, does not abide this irony. It does not authorize courts to excuse every responsibility of every person who files a petition in bankruptcy. It explicitly preserves the power of governmental units to obtain and enforce injunctions to protect public health, safety, and the environment. The preservation of that power and of the remedial injunction at issue here makes sense within the framework of the Code: unlike ordinary creditors, the public does not contract with potential debtors and thus lacks leverage to require security against dangerous behavior. The public's only security lies in the ability of governments to enforce statutes to protect public health, safety, and the environment. Thus, by ignoring the purpose of Ohio's action and focusing exclusively on the effect of the clean-up injunction on Kovacs' purse, the court below fell into error. CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General F. HENRY HABICHT, II Assistant Attorney General LOUIS F. CLAIBORNE Deputy Solicitor General KATHRYN A. OBERLY Assistant to the Solicitor General PETER R. STEENLAND, JR. DIRK D. SNEL WENDY B. JACOBS Attorneys MAY 1984 /1/ As we detail in a moment, in In re Kovacs (Kovacs I), 681 F.2d 454 (6th Cir. 1982), vacated and remanded, No. 82-815 (Jan 24, 1983), the court of appeals held that the automatic stay provision of the Bankruptcy Code (11 U.S.C. 362) barred enforcement of the same state court injunction involved here, insofar as it required th turnover of assets or income of the debtor to implement the clean-up of the waste disposal site. When the State sought review in this Court, we filed a memorandum supporting the petition. On January 24, 1983, the Court granted certiorari, vacated the judgment of the court of appeals, and remanded the case for consideration of mootness. The court of appeals has not yet acted on the remand. /2/ We have cause for concern that both Sixth Circuit decisions in this case may be used to cripple our own environmental enforcement efforts. Already, Kovacs himself has invoked Kovacs I to frustrate a federal action pending against him. United States v. Chem-Dyne Corp., et al., No. C-1-82-840 (S.D. Ohio filed Aug. 26, 1982). At least one district court has refused to vacate a stay against an ongoing federal action in pursuit of an injunction that would order the defendant to abate the health hazard created by its disposal of asbestos wastes. United States v. Johns-Manville Sales Corp., No. 81-299-D (D.N.H. Nov. 15, 1982). /3/ The receiver was authorized "to receive and collect any and all sums of money due or owing to the defendant business entities or defendant Kovacs in any manner, whether the same are now due or shall hereafter become due and payable" (J.A. 13). /4/ Kovacs' original petition sought reorganization under Chapter 11 of the Bankruptcy Code. In September 1980, the bankruptcy court, at Kovacs' request, converted the action to one for straight bankruptcy under Chapter 7 of the Code. See Pet. App. A3. /5/ The State concedes that it cannot enforce that part of the 1979 stipulated order requiring Kovacs to pay the State $75,000 (Pet. 5 n.*). /6/ The present decision of the Sixth Circuit (rendered by a panel different from that in Kovacs I) recites that "(t)he panel of (the court of appeals) that considered the automatic stay aspect of the case dealing with 11 U.S.C. Section 362 has not yet had an opportunity to act on this remand (from the Supreme Court)" (Pet. App. A7 n.5). It seems obvious, however, that the automatic stay question will be moot, as a practical matter, if the present ruling stands, since the underlying obligation will be discharged. On the other hand, if this Court reverses the most recent decision of the Sixth Circuit, the automatic stay, unless vacated by special order, will remain in effect until the bankruptcy proceedings are concluded, thereby inhibiting clean-up operations in the interim. Accordingly, under petitioner's submission, the automatic stay question is not moot. In light of the holding below that the instant decision is effectively governed by Kovacs I (see Pet. App. A10), it is appropriate for this Court to consider arguments and authority on the automatic stay issue at this time, particularly because the proper resolution of the automatic stay question sheds considerable light on the dischargeability question (see pages 8, 15-17, infra). See Sony Corp. of America v. Universal City Studios, Inc., No. 81-1687 (Jan. 17, 1984), slip op. 16 n.17. /7/ The Bankruptcy Code defines "debt" as "liability on a claim" and defines "claim" as either the "right to payment" or the "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." 11 U.S.C. 101(4), (11). The provisions of the Bankruptcy Code pertinent to this case are set forth at J.A. 38-48. /8/ The district court rendered its ruling on September 17, 1982, before this Court vacated the Sixth Circuit's judgment in Kovacs I. /9/ Under the Bankruptcy Code, a discharge "voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under (the Code)." 11 U.S.C. 524(a)(1). Moreover, a discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt * * *." 11 U.S.C. 524(a)(2). /10/ H.R. Rep. 95-595, supra, at 343 (emphasis added): Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay. See also S. Rep. 95-989, 95th Cong., 2d Sess. 52 (1978) (same); 124 Cong. Rec. 32395 (1978) (remarks of Rep. Edwards) (exception is intended "to permit governmental units to pursue actions to protect the public health and safety"); 125 Cong. Rec. 33995 (1978) (identical remarks by Sen. DeConcini). /11/ H.R. Rep. 95-595, supra, at 343: Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judgment would give it preferential treatment to the detriment of all other creditors. See also S. Rep. 95-989, 95th Cong., 2d Sess. 52 (1978) (same). /12/ United States v. Price, supra, was not a bankruptcy case, but its reasoning is equally applicable here. In Price, the Third Circuit faulted the district court for adopting an unduly restrictive view of its equitable remedial powers in the context of environmental protection (688 F.2d at 211). The federal government had requested an order that defendants fund or conduct a diagnostic study of the threat posed by a hazardous waste landfill. The district court denied the request, believing it an attempt to transform a claim for damages into an equitable action. The Third Circuit disagreed (id. at 212): Damages are awarded as a form of substitutional redress. They are intended to compensate a party for an injury suffered or other loss. A request for funds for a diagnostic study of the public health threat posed by the continuing contamination and its abatement is not, in any sense, a traditional form of damages. The funding of a diagnostic study in the present case, thought it would require monetary payments, would be preventive rather than compensatory. The study is intended to be the first step in the remedial process of abating an existing but growing toxic hazard which, if left unchecked, will result in even graver future injury, i.e., the contamination of Atlantic City's water supply. (For other reasons, the Third Circuit was unable to find that the district court had abused its discretion in denying the government's request for a preliminary injunction (688 F.2d at 214).) /13/ We are aware of only one contrary case. United States v. Johns-Manville Sales Corp., No. 81-299-D (D.N.H. Nov. 15, 1982) (refusing to vacate stay against governmental action to obtain a pollution abatement injunction). The Manville decision is flawed for several reasons. First, the court relied almost entirely on the simplistic notion, first advanced in Kovacs I, that any injunction requiring the expenditure of money must be a "money jujgment." Second, the court failed to recognize that a prohibitory injunction (which it would have approved) does not adequately protect the public in many instances. For example, the mere cessation of polluting conduct does not prevent the spread of hazardous substances through the environment into public drinking water supplies; effective public protection therefore requires clean-up or containment of the pollution. The Manville court also erroneously assumed that the federal and state governments can finance the costs of clean-up themselves and then seek reimbursement from the polluter. Congress was well aware, however, that the funds available to the federal government under the so-called "Superfund" legislation, 42 U.S.C. (Supp. V) 9601 et seq., would not be adequate to permit the government to take necessary action at the many thousands of existing dumpsites. See S. Rep. 96-848, 96th Cong., 2d Sess. 62-63 (1980); see id. at 2, 5, 17, 53-55, 57-58. In addition, the Superfund legislation imposes restrictions on the government's expenditures. See 42 U.S.C. (Supp. V) 9604; see also 40 C.F.R. 300.65(d), 300.67(e), 300.68(c) (National Contingency Plan). Finally, the rationale of the Manville decision is severely undercut by the court's inexplicable willingness to permit an injunction ordering the bankrupt both to cease and desist from further pollution and to post a bond to ensure compliance (slip op. 10). Such an injunction obviously would require the bankrupt to spend money. /14/ See also NLRB v. Evans Plumbing Co., 639 F.2d 291 (5th Cir. 1981) (NLRB order requiring reinstatement of two wrongfully discharged employees not subject to automatic stay); In re Thomassen, 5 Collier Bankr. Cas. 2d 997, 1001 (9th Cir. Bankr. App. 1981) ("pecuniary purpose" test defferentiates between governmental actions designed to defeat Bankruptcy Code relief and those brought in furtherance of police powers). /15/ This does not mean that the bankruptcy court is powerless to protect the estate when necessary. The bankruptcy court, in its discretion, may stay actions not covered by the automatic stay pursuant to its general powers under 11 U.S.C. 105. As Congress explained, however, there are certain actions, including governmental actions to protect the public health and welfare, as to which the normal presumption of the automatic stay is inappropriate and the burden of showing the need for a stay is more properly placed on the debtor (S. Rep. 95-989, 95th Cong., 2d Sess. 51 (1978)): The district court and the bankruptcy court as its adjunct have all the traditional injunctive powers of a court of equity * * *. Stays or injunctions issued under these other sections will not be automatic upon commencement of the case, but will be granted or issued under the usual rules for the issuance of injunctions. By excepting an act or action from the automatic stay, the bill simply requires that the trustee move the court into action, rather than requiring the stayed party to request relief from the stay. There are some actions, enumerated in the exceptions, that generally should not be stayed automatically upon commencement of the case, for reasons of either policy or practicality. Thus, the court will have to determine on a case-by-case basis whether a particular action which may be harming the estate should be stayed. See also H.R. 95-595, supra, at 342 (same). Although the question is not at issue here, we would note our view that a debtor such as Kovacs would face a difficult task in attempting to satisfy "the usual rules for the issuance of injunctions." The public interest in cleaning up a hazardous waste site almost certainly would outweigh the trustee's interest in preserving the debtor's estate. Nevertheless, the authority to issue injunctions in appropriate cases mitigates whatever harshness might otherwise be thought to flow from the governmental exemption to the automatic stay. /16/ In general, the automatic stay remains in effect until discharge. 11 U.S.C. 362(c)(2). Depending upon the size of the estate, it may take anywhere from a few months to several years to reach that point. In Kovacs' case, the automatic stay is still in effect, and his debts have not yet been discharged, even though the bankruptcy petition was filed in July 1980. (The ruling on dischargeability at issue in this case was obtained in response to Ohio's request for a declaratory judgment and applies only to Kovacs' obligations under the state court injunction; the dischargeability of the rest of his debts remains to be determined.) /17/ See also 124 Cong. Rec. 33992 (1978) (substantially identical remarks of Sen. DeConcini). /18/ See generally Matthews, the Scope of Claims Under the Bankruptcy Code, 57 Am. Bankr. L.J. 221 (Installment 1) and 339 (Installment 2) (1983); 2 Collier on Bankruptcy Section 101.04 (15th ed. 1984). /19/ The Sixth Circuit plainly erred in its conclusion that "in the absence of any contention by the State of Ohio in the Bankruptcy Court that the judgment obligation of Kovacs is exempted from discharge under some provision of Section 523, a discahrge under Section 727 is warranted" (Pet. App. A10). Whether an order fits within an exemption (11 U.S.C. 523) to the discharge provision is simply irrelevant to the threshold question: whether the order constitutes a "claim." Notably, there is no exemption provided for criminal restitution. Yet, as discussed later (see pages 22-23, infra), the obligation to abate a health and environmental endangerment should survive discharge. It is possible, of course, that in certain cases a clean-up obligation would be non-dischargeable under 11 U.S.C. 523(a)(6), which exempts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." In light of Kovacs' "flagrant disregard" of the state court injunction and his continued discharge of hazardous wastes after entry of the stipulated judgment (Pet. App. A54), Section 523(a)(6) may be especially applicable to the instant case. As a general matter, however, a polluter's obligation to clean up his unlawful discharges does not depend on his state of mind. Whether the violation is willful or not, the need to protect the public health and welfare remains the same. We therefore agree with petitioner that this case should be decided on the basis of the statutory definitions of "debt" and "claim." /20/ See, e.g., the Clean Water Act, 33 U.S.C. 1364; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (Supp. V) 6973(a); the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (Supp. V) 9606(a); the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. 1271(a)(2); and the Clean Air Act, 42 U.S.C. (Supp. V) 7603(a). /21/ "A money judgment is one which adjudges the payment of a sum of money, as distinguished from one directing an act to be done or property to be transferred or restored. 2 Bouv. Law. Dict. p. 2240." United States Fidelity & Guaranty Co. v. Ft. Misery Highway Dist., 22 F.2d 369, 372 (9th Cir. 1927). /22/ As previously noted (see page 18 note 19, supra), the Bankruptcy Code provides no express exemption from discharge for criminal restitution, yet that "omission" does not affect the obligation to make such payments. Again, therefore, the court of appeals' emphasis (Pet. App. A10) on the absence of an express exemption for mandatory clean-up injunctions was misplaced. /23/ The cost of compliance was estimated to be $323,000 (466 F. Supp. at 1334). Although Canarico Quarries was decided under the old Bankruptcy Act, the court took pains to analyze the recently enacted amendments to the Code and concluded that the Code compelled the same result. Id. at 1339-1340. /24/ See also In re Vermont Real Estate Investment Trust, 25 Bankr. 804, 806 (Bankr. D. Vt. 1982) (court ordered the bankrupt's estate to reimburse the city for the cost of removing a dangerous building from the bankrupt's property, reasoning that the expense was a cost of administering the estate, "necessary for the safety and welfare of the public in general").