USCA1 Opinion

United States Court of Appeals

For the First Circuit
For the First Circuit

____________________

No. 96-2371

CUMBERLAND FARMS, INC.,

Appellant,

v.

FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION,

Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Douglas P. Woodlock, U.S. District Judge]

___________________

____________________

Before

Torruella, Chief Circuit Judge,

___________________

Bownes, Senior Circuit Judge,

____________________

and Stahl, Circuit Judge.

_____________

____________________

Barbara D. Gilmore with whom Sullivan & Worcester LLP and Mark
__________________
_________________________
____
Howard were on brief for appellant.
______
Jonathan H. Alden, Assistant General
__________________

Counsel, Florida Departm

of Environmental Protection for appellee.

____________________

June 19, 1997

____________________

BOWNES, Senior
BOWNES, Senior

Circuit Judge.
Circuit Judge.

This is

an appeal

_____________________

from the judgment of the district court affirming the summary

judgment

of the

bankruptcy

court imposing

debtor-appellant

Cumberland

Farms,

follow Florida

of petroleum

was

a debtor-in-possession

in a

The district court

the bankruptcy

court that

of

designation

appellee

Protection

as

is

for

the fine,

Chapter 11

failure

to

the amount

priority

the

Florida

Cumberland

reorganization

also affirmed the ruling

of

given administrative

Cumberland

(FDEP).

tanks (USTs).

the fine be

expense priority status.

imposition

Inc.,

against

laws and regulations covering the maintenance

underground storage

proceeding.

a fine

of

appeals

the fine,

administrative

Department

expense.

of

the

and its

The

Environmental

It is the regulatory agency in charge of

administering

certain

Florida

environmental

statutes

including the maintenance of USTs for petroleum and petroleum

products.

Standard of Review
Standard of Review
__________________

Our review, as was

de novo.
__ ____

1994).

that of the district

In re Varrasso, 37
_______________

Federal Rule

F.3d 760,

of Bankruptcy 7056,

court, is

762-63 (1st

Cir.

governing summary

judgment in the bankruptcy court incorporates Rule 56 of

the

Federal Rules of Civil Procedure.1

____________________

1.

Fed. R.

"shall be

Civ. P.

56(c) provides

rendered forthwith if

answers to interrogatories, and

that summary

judgment

the pleadings, depositions,

admissions on file, together

-22

Cumberland does not claim that summary judgment was

inappropriate.

Its brief attacks the findings and rulings of

the district and bankruptcy courts.

a new

The relief sought is not

hearing but summary judgment in

the judgment of the district court.

The Facts
The Facts
_________

its favor.

We affirm

Cumberland

approximately

stations in

USTs.

May

owned

and

134 combined

Florida.

operated

convenience stores

Each store-station

had

There was an average of three tanks per

1,

1992,

Cumberland

filed

voluntary

network

of

and gasoline

one or

more

location.

On

petition

in

bankruptcy under Chapter 11 of the Bankruptcy Code.

Under

ch. 376.309

of the

Florida Statutes,

each

owner of a UST location must "establish and maintain evidence

of financial responsibility."

Administrative

Code requires

Rule 62-761.480 of

that an

owner of

shall demonstrate "the ability to pay for

third

party

facility"

liability resulting

in accord

with

from

the Code

Florida's

UST site

faulty cleanup and

discharge at

of Federal

the

Regulations

(C.F.R.),

UST

Title 40, Part 280, Subpart H.

owner

obtaining

to

establish

financial

This C.F.R. allows

responsibility

by

insurance or satisfying a self-insurance standard.

____________________

with
issue

the affidavits, if any,

as to any

material fact and that

entitled to a judgment as a
that the

show that there

materials

must be

the moving party is

matter of law."
considered

favorable to the non-moving party.

-33

is no genuine

It is axiomatic

in the

light

most

To meet the

self-insurance requirements,

documents must

filed within

120 days of the

end of the fiscal

UST

Satisfaction of

financial responsibility

owner.

prerequisite

for

enrollment

in

Liability and

Restoration Insurance

the

be

year of the

Florida

is a

Petroleum

Program (PLIRP).

Fla.

Stat. ch. 376.3072 (1996).

Cumberland operated its UST

1992 through

reporting

August 27,

insurance

1993 without meeting

requirements

regulations.

to

requirements.

sites from February 1,

of

Florida

laws

the financial

and

Effective August 27, 1993, Cumberland

satisfy

Florida's

Cumberland

financial

was, therefore,

pertinent

obtained

responsibility

in

violation of

Florida's financial responsibility law and regulations during

the bankruptcy period of May 1, 1992 to August 27, 1993.

Florida law also

incorporates 40 C.F.R. 280.110(a)

into its UST regulatory regimen.

Section 280.110(a) mandates

that a UST owner notify the regulatory agency within ten days

of

the

filing

proceeding.

of a

voluntary

or

involuntary

Cumberland failed to notify

Chapter 11

the FDEP within the

ten-day period of its Chapter 11 filing.

Florida law provides for

penalty

violation

of up

for

regulations.

to

each

$10,000

per

violation

the imposition of a civil

offense

of

for

Florida

each

laws

day

and

Fla. Stat. ch. 403.161 and 403.141 (1995).

of

FDEP

-44

The

1993

in

the

FDEP

brought an

bankruptcy

Administrative Expense

application on

court

Claim in

for

an

September 1,

Allowance

the amount of

of

an

$200,000 for

the bankruptcy period of May 2 to August 27, 1993.

This was

the civil

court to

penalty that

FDEP asked

the bankruptcy

impose on Cumberland.

The FDEP moved for summary judgment on

its

hearing was

application.

summary judgment

granted

on

the FDEP's

May 23,

priority as an

to the

1996.

motion for

penalty of $200,000 and

held

The

bankruptcy

ruled that the claim would

administrative expense.

now before

motion

summary judgment,

district court, which affirmed

The case is

on the

for

court

imposed a

be given

Cumberland appealed

the bankruptcy court.

us on Cumberland's

appeal from

the

on appeal.

We

district court.

Cumberland

treat them

makes

three arguments

seriatim, quoting them as

stated in Cumberland's

brief.

I.

THE

CONCLUDED

BANKRUPTCY
CUMBERLAND

COURT
WAS

WRONGLY
NOT

IN

COMPLIANCE WITH PLIRP DURING THE DISPUTED

PERIOD.

As part of this argument Cumberland maintains

it was

in

"substantial compliance"

asserts that

its failure to

with

PLIRP.

file an affidavit

It

that

also

of financial

responsibility "should be deemed waived."

There

FDEP

the

can be no

authority

to

doubt that Florida

establish rules

-55

and

law gives the

regulate

the

operations

(1995).

of

USTs

in Florida.

Under chapter

403.141

Fla.

and

Stat. ch.

.161

of the

376.303

Florida

Statutes, failure to comply with any rule, regulation, order,

or permit

issued by

the

FDEP is

a violation

of the

law.

Cumberland does not deny that it failed to file the requisite

financial

that

responsibility information

on February 1, 1992,

when due.

argues

which was pre-bankruptcy, the law

making a UST owner eligible for enrollment

only

It

"substantial compliance."

in PLIRP required

Cumberland asserts

that it

was in substantial compliance.

We agree with the district court that enrollment in

the PLIRP

during the disputed

period is not

an issue.

We

note, as did

the district court,

made no findings as

that the bankruptcy

to Cumberland's eligibility under PLIRP.

The FDEP brought its claim for penalties under

and regulatory provisions of

implicated.

court

Florida law.

the statutory

The PLIRP

is not

Violation of the PLIRP results only in exclusion

from the insurance program, not in regulatory penalties.

bankruptcy

court, therefore,

was

not the

proper forum

The

to

determine Cumberland's PLIRP status.

We

failure

to

find no

file an

should be deemed

that

the gravamen

basis

for

affidavit

waived.

of the

holding that

of

Cumberland's

financial responsibility

Cumberland's argument

seems to be

financial responsibility

test is

that the owner or operator of a UST facility have a net worth

-66

of $10 million; that Cumberland at all times had

of

the

a net worth

at least $10.2 million and that, therefore, the filing of

financial

disagree.

of the

reports

should

be

"deemed

The gravamen of the offense

waived."

We

is not the net worth

___

UST owner, but the timely filing by such owner of the

required

financial

reports.

despite its knowledge

failure

affidavit

cannot be

filed

Koumantzelis)

of the legal

excused or

by

Cumberland

to do

requirements.

condoned on

corporate

on February

failed

official

15, 1994,

And

so

such

the basis

of an

(Arthur

C.G.K.

which itself

fails to

meet the reporting requirements.

II.

UNDER THE

GRACE PERIOD FOR

FINANCIAL RESPONSIBILITY
DEP

COULD

NOT DENY

FILING

AFFIDAVITS, THE

CUMBERLAND COVERAGE

UNDER PLIRP UNTIL AFTER

CUMBERLAND FILED

ITS BANKRUPTCY PETITION.

This

is

argument already made

variation

of

and answered.

the

PLIRP

We reject

eligibility

it for

same reasons.

III.

EVEN IF CUMBERLAND WAS NOT ENROLLED

IN PLIRP DURING THE DISPUTED

PERIOD, THE

BANKRUPTCY COURT ABUSED ITS DISCRETION IN

the

GIVING AN AWARD OF PUNITIVE DAMAGES AS AN

ADMINISTRATIVE EXPENSE CLAIM.

Cumberland

authority

this

to impose

first

argues

civil penalties.

that

the

The short

FDEP

lacks

answer to

contention is that the FDEP did not impose the penalty,

the bankruptcy court did.

be judicially imposed.

Under Florida law the penalty must

Cumberland argues that the DEP never

-77

sought to impose such

ignores two things:

penalties in any Florida court.

This

There is no Florida requirement that the

penalty sought be imposed

bankruptcy court was

by a Florida state court,

the proper

forum for the

and the

DEP to

seek

imposition of the penalty sought.

It

regulated

is

areas such

bankruptcy court

involved.

not have

protecting

must

now

as

abundantly clear

protection of

comply with

the

that

Debtors in

carte blanche

the

environment

in

state-

the environment,

laws of

In re Virginia Builders, Inc., 153 B.R.

______________________________

(E.D. Va. 1993).

do

by

the

state

729, 735

possession, such as Cumberland,

to ignore

state and

against pollution.

local laws

Midlantic

_________

Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 474 U.S.

___________________________________________________

494, 505 (1986).

Cumberland

penalty.

bankruptcy

The

next

assessment

court is a

clearly erroneous

challenges

the

amount

of

the

of the

of $200,000

by

the

sum

finding of fact

test.

We note

reviewed against the

first

that the

$200,000

penalty is considerably less than the maximum of $647 million

that

was

could have been assessed.

either

submitted

willful or

the

documents

Moreover,

Cumberland

required,

that

Chapter 11 of

grossly

it

did

had

Cumberland's failure to file

negligent.

required

not

under

notify

filed a

the bankruptcy code.

the

voluntary

We have

It

has

never

Florida

FDEP,

petition

as

law.

was

under

read the record

-88

carefully and can find

no compelling basis for

reducing the

$200,000 penalty.

The

final issue

is

whether the

bankruptcy court

erred in giving the fine administrative expense status.

Both the district and bankruptcy courts found In re

_____

Charlesbank Laundry, Inc., 755 F.2d 200, 203 (1st

_________________________

controlling.

Cir. 1985)

Before we discuss Charlesbank, however, we must

___________

first examine

Reading Co. v. Brown,

______________________

391 U.S.

471

(1968)

because Reading was themainstay of the opinion inCharlesbank.

_______
___________

In Reading the negligence of a receiver

_______

debtor's

business under

Chapter

11 of

conducting

the Bankruptcy

Act

resulted in a fire that totally destroyed a building that was

debtor's

only

significant

adjoining premises

belonging to

stated

by

asset.

The

and destroyed real and

petitioner Reading.

the Court

was,

Id. at
___

"whether

the

fire

spread

to

personal property

473.

The issue as

negligence

of

receiver

administering

an

arrangement gives rise to

operating

the

estate

under

Chapter

an 'actual and necessary cost'

the debtor's business."

Id. at 476.
___

XI

of

In rejecting

position of the trustee that no negligence claims should

receive priority, the Court stated:

In
one

our view

the trustee

important,

statutory
persons
insolvent.

and

here

objective:
having

has overlooked
decisive,

fairness to

claims

Petitioner

against
suffered

all
an
grave

financial injury from what is here agreed

to

have

been

the

negligence

receiver and a workman.

-99

of

the

Id. at 477.
___

The Court also stated,

Although there appear to be no cases

dealing with tort
Chapter

XI

claims arising

proceedings,

decisions

analogous cases suggest that

necessary

costs"

ordinarily

incident

business, and
without

should

which

not

to

during

"actual and

include

costs

operation of

be limited

rehabilitation

in

to

costs

would

be

impossible.

Id. at 483.
___

We think this last

case at

bar.

The

observation is pertinent to the

payment of

a fine

for failing,

during

bankruptcy, to meet the requirements of Florida environmental

protection laws

of a

is a cost "ordinarily

business" in

light of today's

incident to operation

extensive environmental

regulations.

The question in Charlesbank Laundry was "whether a

____________________

civil

compensatory fine for violation of

debtor corporation

qualifies for

expense

. .

injunction

engaged

in a

Chapter 11

first priority treatment

. ."

had

755 F.2d

been

issued

prohibiting it from committing

at 201.

against

practices undeterred.

reorganization

as an administrative

state preliminary

Charlesbank

Laundry

a public and private nuisance

and from violating a zoning ordinance.

its past

an injunction by a

The laundry continued

Shortly before

a hearing on

the merits Charlesbank Laundry filed a Chapter 11 petition in

bankruptcy.

The state court actions were ultimately settled.

Charlesbank was

ordered to pay a

compensatory fine assessed

-1010

civilly

for

violation

of

Plaintiffs sought allowance of

the

temporary

injunction.

the amount incurred after the

bankruptcy

filing

($11,000)

as

priority

claim.

The

bankruptcy court rejected the priority claim and the district

court affirmed.

With

stating:

Reading
_______

"We see

as

the

no reason why

lodestone,

we

reversed,

the claim of plaintiffs

in

this case does not fall within both the letter and the spirit

of Reading."
_______

755 F.2d at 202.

We think the

of Charlesbank Laundry is pertinent to

____________________

last paragraph

the $200,000 penalty

imposed in the case before us:

We now

touch briefly on

be considered an
the

district

what might

alternative ground
court's

for

holding--the

ordinary presumption against the awarding

of attorney's
misperceived

fees.
the

We think

nature

the court

of the

award.

Counsel fees were not added on to damages

under any notion of automatic entitlement
flowing

from

brought.
of

the

the nature

the action

They were, instead, the measure

compensatory

plaintiff.

Such

agreed

upon by

thereof

being

discretion
the

of

fine

awarded

measure

had

the parties,
left

of the

to

judge simply set

been

the amount

the

judge.

to

informed

Clearly, had

the amount

of the

fine without revealing how he

arrived at

it,

basis

for

thus see

no

there

would

be

challenging

it here.

justifiable

reason

the

award

expense

here

We
for not

as

deserving

no

an
of

recognizing

administrative
first

priority

treatment.

755 F.2d

at 203.

This

means, at the least,

can be given priority status.

-1111

that a penalty

In In re Mammoth Mart, Inc., 536 F.2d 950, 954 (1st

________________________

Cir. 1976), we noted

that priority status could be

claims

"injured by

of creditors

operation of the

arise from

rehabilitate

for

the debtor-in-possession's

business even though

transactions that

the estate."

this statement.

given to

their claims did

were necessary to

We cited

not

preserve or

to Reading as authority
_______

In In re Hemingway Transport, Inc., 954

_______________________________

F.2d 1 (1st

Circuit

Cir. 1992),

we made a

law on priority claims.

traditional presumption favoring

all

of

general survey of

We first

First

noted that, "The

ratable distribution

among

holders of unsecured claims counsels strict construction

the

Bankruptcy

priority payment

Code provisions

of administrative

governing

expenses."

requests for

Id.
___

We then stated:

As

a general

rule,

a request

priority

payment

of

an

expense

pursuant

to

Bankruptcy Code

503(a) may
payment

qualify if
arose

transaction
rather

with

than

administrative

(1) the

from

the
from

payment was
the debtor.

supporting

right to

postpetition
debtor

estate,

prepetition

transaction with the debtor, and

consideration

for

the

beneficial to the

(2) the
right

to

estate of

at 4-5.

Id.
___

This was followed by the observation:

We

have

category

recognized

of

expense

administrative priority
considerations
see
___

of

Reading Co.,
___________

entitled

"injured

possession's

to

status, based on

fundamental fairness,
391

U.S. at

S.Ct. at 1763, consisting of

entities

special

by

operation

-1212

477,

88

amounts due

the
of the

debtor-inbusiness

even

though their

claims did

from transactions that were

not arise

necessary to

preserve or rehabilitate the estate."

In
__

re Mammoth Mart, 536 F.2d at 954.

_______________

Id.
___

We then analyzed

held

that the

Reading and Charlesbank Laundry.

_______
____________________

"request for

allowance of

We

an administrative

expense priority is not within the ambit of either Reading or

_______

Charlesbank . . . ."
___________

opinion

stating:

Reading-Charlesbank
___________________

Id. at 6.
___

"We are

We ended this section of the

aware of

no authority

that the

exception encompasses a right to payment

originating in a prepetition contract

with the debtor."

Id.
___

at 7 (footnote omitted).

We hold that

the present case does come within the

ambit

of Reading and
_______

claim

incurred during

business while it was

Charlesbank.
___________

the

This

operation of

was a postpetition

Cumberland

operating under Chapter 11.

Farms'

We think

it would be fundamentally unfair to allow Cumberland Farms to

flout

Florida's

environmental

protection laws

and

escape

paying a penalty for such behavior.

The judgment of the district court is affirmed.

affirmed
________

-1313