New York City Housing Authority v. G-I Holdings, Inc. ( 2016 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-2164
_____________
In re: G-I HOLDINGS INC, f/k/a GAF Corporation, et al.,
Debtors
NEW YORK CITY HOUSING AUTHORITY,
Appellant
v.
G-I HOLDINGS, INC.
_____________
On Appeal from the United States District Court
for the District of New Jersey
District Court No. 2-14-cv-06103
District Judge: The Honorable Stanley R. Chesler
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
July 14, 2016
Before: SMITH, ROTH, and RENDELL, Circuit Judges
(Filed: July 18, 2016)
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OPINION
_____________________
SMITH, Circuit Judge.

This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does
The New York City Housing Authority (NYCHA) has creatively tried to
repackage its claim against G-I Holdings for property damage as a claim for
injunctive relief in the hopes of getting a better outcome this time around.
Specifically, NYCHA argues that its “new” claim is a non-dischargeable injunctive
claim for pollution abatement brought by NYCHA in its capacity as a
governmental entity. By turning its monetary claim for property damage into a
“regulatory” action, NYCHA hoped to avoid the steep discounting, inherent in
most bankruptcy proceedings, of its claim for monetary damages. We hold that
NYCHA cannot so easily circumvent federal bankruptcy laws. We will therefore
affirm the District Court’s judgment in all respects.
I.
NYCHA is a public corporation created under New York law to construct
and maintain public housing for lower-income residents in New York City.
Approximately 419,000 residents are currently housed in NYCHA’s 2,702
residential properties. G-I Holdings is the corporate successor to a manufacturer of
housing products that contained asbestos. Facing close to 500,000 asbestos-related
lawsuits, G-I Holdings filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in 2001. During the bankruptcy process, NYCHA submitted a
Proof of Claim seeking roughly half a billion dollars for property damage to its
not constitute binding precedent.
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buildings. As a result of the well-documented carcinogenic effects of exposure to
asbestos fibers, NYCHA claimed that it had to undertake extensive, and expensive,
precautionary measures whenever it removed Asbestos Containing Material
(ACM) from any of its buildings. The Proof of Claim filed by NYCHA did not
mention injunctive relief or allege that its claim was non-dischargeable.
On November 9, 2009, the Bankruptcy Court in conjunction with the District
Court approved the Eighth Amended Joint Plan of Reorganization (Plan), which
disposed of all covered claims against G-I Holdings and barred the holders of such
claims from reasserting them against the reorganized G-I Holdings. NYCHA
never appealed the Confirmation Order finalizing the Plan.
However, three years later NYCHA filed a complaint against G-I Holdings
in which it sought an injunction to compel G-I Holdings to remove ACM from
hundreds of NYCHA’s buildings. In this complaint, NYCHA put forward two
reasons why this claim was not barred by the now-finalized Plan. First, NYCHA
argued that its request for an injunction was not a “claim” as defined by the Plan
and thus was not barred by the res judicata effect of the District Court’s
Confirmation Order. Second, NYCHA argued that as a governmental entity, it
should be allowed to use its inherent regulatory power to force G-I Holdings to
remediate the environmental damage caused by the ACM. The Bankruptcy and
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District Courts rejected both of these arguments, and we do the same.1
II.
NYCHA’s request for an injunction is most certainly a claim as defined by
the Plan. The Plan specifically states that a “claim” includes “any right to any
equitable remedy.” JA 1202. Thus, to the extent NYCHA is acting as a creditor
seeking to enforce a claim for injunctive relief, this claim is barred by the clear
terms of the Plan.
NYCHA, however, argues that it is not an ordinary creditor. Instead, it
claims that it can exercise its inherent power as a governmental entity to compel G-
I Holdings to remediate the ongoing environmental harm resulting from the ACM
it produced. In support, NYCHA cites several cases which stand for the much
narrower proposition that an entity cannot simply “discharge” future compliance
with state and local environmental laws by entering into bankruptcy. See, e.g., In
re Torwico Elec., Inc., 8 F.3d 146 (3d Cir. 1993); In the Matter of Quanta
Resources Corp., 739 F.2d 912 (3d Cir. 1984).
A brief explanation of our holding in Torwico will help clarify why
1
We have jurisdiction pursuant to 28 U.S.C. § 158(d)(1), the District Court had
jurisdiction pursuant to 28 U.S.C. 158(a)(1), and the Bankruptcy Court had
jurisdiction pursuant to 28 U.S.C. 157(b). “We exercise de novo review over
orders granting motions to dismiss.” In re Plassein Int’l Corp., 590 F.3d 252, 256
(3d Cir. 2009).
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NYCHA’s attempt to invoke this exception fails. In Torwico, the New Jersey
Department of Environmental Protection and Energy (NJDEPE) issued an order
requiring Torwico to submit a written plan explaining how it would close the
seepage pit that was allegedly polluting local waterways. 8 F.3d at 147-48.
Torwico argued that this was a “claim” under its bankruptcy reorganization plan
and thus was discharged because the NJDEPE did not file a timely proof of claim.
Id. at 148. We disagreed, explaining that the state was exercising its police powers
to “enforce laws requiring Torwico to clean up the hazardous waste it is
responsible for under state law.” Id. We thus held that “a debtor cannot maintain
an ongoing nuisance in direct violation of state environmental laws. The state can
exercise its regulatory powers and force compliance with its laws, even if the
debtor must expend money to comply.” Id. at 150. Torwico – and the judicially
created exception NYCHA is trying to invoke – is thus limited to situations in
which a state is not attempting to enforce a “right to payment” but is instead
invoking its “right to force the debtor to comply with applicable environmental
laws by remedying an existing hazard.” Id.This case is easily distinguishable from Torwico and the other similar cases
NYCHA cites. First, NYCHA does not point to a single law which requires G-I
Holdings to mitigate the property damage resulting from its products or which
permits NYCHA to hold G-I Holdings liable for the environmental harm caused by
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its products. Instead, the only laws mentioned impose a duty on NYCHA to
provide safe housing for its residents. Second, NYCHA is a public corporation
created for the specific purpose of providing housing to lower-income residents in
New York City. It has not been given authority to enforce New York’s
environmental laws. Third, as NYCHA admits, the asbestos fibers in ACM only
create a health hazard when ACM is removed or otherwise disturbed during
apartment renovations. The state is thus not confronted with a polluter whose
conduct necessitates injunctive relief to stop ongoing pollution. Instead, the injury
here is the additional cost associated with renovating apartments that contain
ACM. These additional costs are properly conceptualized as a form of property
damage to NYCHA that occurred when the ACM material was installed. Thus,
NYCHA’s claim for injunctive relief is merely an attempt to force G-I Holdings to
foot the bill for remediation of a past harm. This type of claim was dealt with in
G-I Holdings’ bankruptcy proceeding and cannot be relitigated now.
NYCHA’s claim is thus properly characterized as a “repackaging of a
forfeited claim for damages.” Torwico, 8 F.3d at 150. NYCHA is not a regulatory
agency seeking to enforce a state or local law; it is simply a creditor seeking to
circumvent the limitations on its recovery of monetary damages from G-I Holdings
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under the Plan.2 We will accordingly affirm the District Court’s judgment in all
respects.
2
The Bankruptcy Court therefore properly denied NYCHA’s request to amend its
Proof of Claim to incorporate these “new” claims.
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