Balancing Bankruptcy and Environmental Law: Midlantic National Bank v. New Jersey Department of Environmental Protection

Abstract

Balancing Bankruptcy and Environmental Law: Midlantic National Bank v. New Jersey Department of Environmental Protection RONALD MANN Introduction Congress’s 1978 adoption of the Bank­ ruptcy Code was a legislative landmark, the culmination of a decade of attention to a woefully antiquated bankruptcy system largely left intact since the nineteenth century. Senate hearings in 1968 led to the appointment of a prestigious bipartisan Bankruptcy Commission, which produced a massive report, which served in turn as a template for a statute that brought wholesale change to almost every aspect of the bankruptcy system.' So what would the Supreme Court do with this new statute? The Court’s persistent doubts about the constitutionality of the Code’s broad alloca­ tion of authority to bankruptcy courts led to an extended series of decisions trimming back the Code’s jurisdictional grant, starting with Northern Pipeline Construction Co. v. Marathon Pipe Line Co.2 and continuing with Granfinanciera v. Nordberg3 and Stern v. Marshall.4 Less well known, by comparison, is the persistently narrow interpretation ofthe Code in the Court’s statutory cases, which routinely subordinate the needs ofa broad and effective bankruptcy process to the policies of other federal and state legal regimes.5 The roots ofthe Court’s narrow interpre­ tive frame lie in one of the earliest of the Court’s decisions under the Code, Midlantic National Bank v. New Jersey Department of Environmental Protection.6 Midlantic presented a classic problem of statutory interpretation, in which the Code’s provisions 102 JOURNAL OF SUPREME COURT HISTORY for the protection of the estate conflicted directly with developing rules for environ­ mental law. More broadly, the case offered the Court its first chance to assess Congress’s broadening of the bankruptcy regime: case law under the old Bankruptcy Act had limited the bankrupt’s ability to ignore environmen­ tal law, but language in the Code suggested that Congress contemplated a much broader freedom of action going forward. The result was a considered refusal to credit the broadened language of the new Code. Justice Lewis F. Powell’s opinion for the Court adopted a clear-statement rule under which it would presume that provisions of the Bankruptcy Code have the same meaning as predecessor provisions of the Bankruptcy Act. What is most surprising about the decision, though, is not apparent on its face—how close the Court came to ruling in favor of the bankrupt. As the internal papers of the Justices show, Justice Powell “stole” a Court in this case. The decision at Conference favored the bankrupt; it was only a changed vote by Justice John Paul Stevens that led to the Court’s adoption ofMidiantic's Code-narrowing clear-statement rule.7 Political Background Midlantic came to the Court in the mid1980s , just as state and federal efforts to curtail pollution reached their zenith. Envi­ ronmental disasters in the post-World War II era, including the Cuyahoga River fire in 1969 and Three Mile Island in 1979, convinced much of the public that stricter measures were necessary to control industrial pollution.8 State pollution programs began in earnest in the 1960s, but the federal government became involved in the 1970s with the creation of the Environmental Protection Agency, major amendments to the Clean Air Act, and the passage of the Clean Water Act.9 Most important was the 1980 adoption of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The rise of federal activity in this period led to an uneasy tension with state efforts to combat environmental pollution. Although the premise of federal environmental inter­ vention was that the federal government’s efforts would complement state laws,10 federal programs often preempted more aggressive state programs. Scholars routinely explain that the passage of federal environ­ mental laws reflected rent-seeking by pol­ luters who sought lax federal regulations to preempt the increasingly effective regulation at state and local levels.11 Those critics often point to the 1965 enactment of the Motor Vehicle Pollution Control Act, which stymied state efforts to place harsh limits on automo­ bile exhaust emissions. It surprised no one that major economic interests, sensing that some form of environmental regulation was inevitable, sought standardized (lower) fed­ eral pollution...