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

Citations: 514 B.R. 720; 2014 WL 3954221; 2014 Bankr. LEXIS 3450Docket: CASE NOs. 01-30135 (RG) and 01-38790 (RG) (Jointly Administered); ADV. NO. 12-1903 (RG)

Court: United States Bankruptcy Court, D. New Jersey; August 12, 2014; Us Bankruptcy; United States Bankruptcy Court

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Consolidated Debtor G-I Holdings, Inc. filed a Motion to Dismiss the New York City Housing Authority's (NYCHA) Complaint for Injunctive and Declaratory Relief, prompting a hearing on February 26, 2013. NYCHA, an independent public housing authority in New York, manages 345 developments and provides housing for approximately 175,000 families, facing a high demand for public housing with over 30,000 applicants on waiting lists. G-I Holdings, with its principal business in New Jersey, filed for Chapter 11 bankruptcy on January 5, 2001, with a related subsidiary, ACI, doing the same shortly thereafter. The cases were administratively consolidated, and an Official Committee of Unsecured Creditors was appointed to represent those affected by asbestos from G-I’s predecessor companies, which are involved in numerous lawsuits. G-I is linked to GAF Corporation, which transferred significant asbestos liabilities to a subsidiary, BMCA, in 1994. G-I proposed a Joint Plan of Reorganization in 2008, but NYCHA objected, claiming the plan failed to address its right to restitution and overlooked relevant New York law, arguing it would shift costs to NYCHA.

NYCHA did not object to the third through eighth amended plans. On July 1, 2009, the Court issued the Amended Plan Confirmation Scheduling Order, setting September 4, 2009, as the deadline for objections to the Plan confirmation and September 30, 2009, for the start of confirmation hearings. Following modifications, G-I filed an Eighth Amended Joint Plan of Reorganization on October 5, 2009. Hearings on the Plan's confirmation were held on September 30, October 5, 6, 15, and November 7, 2009, with NYCHA's counsel present at some hearings but failing to assert claims for administrative expenses, nondischargeability, or injunctive relief. On November 12, 2009, the District Court in New Jersey and this Court issued the Confirmation Order, overruling NYCHA’s objection. NYCHA did not appeal this order, which became effective on November 16, 2009, followed by the Plan's effectiveness on November 17, 2009.

The Confirmation Order delineated deadlines for claims and provided for the discharge of claims, mandating that administrative expense claims be filed by December 17, 2009, or within thirty days post-effective date, with failure to do so resulting in barring from asserting claims against the Debtors under 502(b)(9) of the Bankruptcy Code. It confirmed that all claims against the Reorganized Debtors would be discharged, and claimants were permanently enjoined from pursuing any actions related to such claims against the Reorganized Debtors. The term "Claims" was defined to include any claim as per section 101(5) of the Bankruptcy Code against G-I or ACI, and any rights to equitable remedies.

Additionally, a bar date of October 15, 2008, was set for creditors to file claims. NYCHA submitted its Proof of Claim on October 10, 2008, amounting to $500,000,000 for property damage due to alleged asbestos products associated with G-I or its predecessors. This claim involved numerous NYCHA buildings constructed with asbestos materials and included ongoing costs for abating hazards from these products.

Legal bases for property damage claims include New York and New Jersey laws related to negligence, breach of warranty, nuisance, restitution, and indemnity. On November 17, 2008, NYCHA submitted a supplemental proof of claim, which included documentation confirming that its buildings contained asbestos-containing materials (ACMs) such as vinyl asbestos floor tiles, roofing, and insulation products from G-I’s predecessors. NYCHA's submissions did not address claims for administrative expenses, non-dischargeability, or injunctive relief, and it asserted that its proof of claim fully represented its theories of recovery and the basis for damages. Asbestos, described as carcinogenic, was used in various construction materials, leading to serious health risks, including mesothelioma and lung cancer. Evidence indicates that exposure can occur even with minimal fiber inhalation, and diseases can develop long after exposure. The New York City Department of Environmental Protection regulates asbestos abatement, requiring NYCHA to follow strict procedures to prevent hazardous fiber release. Failure to adhere to these regulations could expose individuals to significant health risks associated with asbestos.

G-I Holdings and its predecessors were involved in the mining, manufacturing, and sale of asbestos-containing materials (ACMs) from the 1920s until at least the 1980s, despite being aware of the associated health hazards. NYCHA alleges that G-I failed to provide any warnings regarding these hazards while supplying ACMs for use in buildings, leading to unsafe conditions for occupants. 

On September 7, 2012, NYCHA filed an adversary proceeding against G-I, seeking injunctive and declaratory relief. The specific requests include: (1) a mandatory injunction requiring G-I to take actions to prevent asbestos fiber release during removals of its ACMs, in compliance with applicable laws; (2) a declaration that NYCHA’s claims for past and future relief are not dischargable under the Bankruptcy Code; and (3) a ruling that NYCHA's post-petition expenses for preventing hazardous conditions are administrative expenses under 11 U.S.C. 503(b).

NYCHA's claims for injunctive relief are supported by claims for restitution and indemnification. NYCHA contends that G-I's actions have led to dangerous conditions in its buildings, putting occupants at risk from asbestos exposure when the materials are disturbed or removed. NYCHA argues it has borne a legal and equitable duty to ensure safety, which should have been the responsibility of G-I, and seeks restitution for past expenditures related to this duty and an order for G-I to undertake future safety efforts. Additionally, NYCHA requests indemnification for past costs and future obligations related to the safe management of G-I's ACMs.

Count I of the Complaint seeks injunctive relief to prevent future harm, requesting that the court order G-I to implement necessary safety measures for the removal of asbestos in NYCHA buildings, conduct abatement work promptly, adhere to NYCHA's time and place restrictions, compensate NYCHA staff at actual cost, and report quarterly on abatement progress to the court, which will retain jurisdiction until project completion. Count II asserts that G-I's obligations to NYCHA are non-dischargeable, emphasizing that compliance with laws for safe asbestos removal is not a 'debt' and should be enforced through a mandatory injunction. NYCHA claims past damages due to G-I’s predecessors misleadingly selling asbestos products, contending these liabilities are non-dischargeable under bankruptcy law due to principles of indemnity and restitution. Count III requests a declaration that NYCHA's past expenditures qualify as administrative expenses under 11 U.S.C. 503(b) and should be fully reimbursed. NYCHA argues it is a governmental unit with the authority to maintain safe housing, asserting that its substantial post-petition expenditures were necessary to mitigate imminent health risks caused by G-I's actions. The court is asked to declare that NYCHA’s claims for injunctive relief, equitable relief for past expenditures, and post-petition costs are non-dischargeable and to provide any additional relief necessary for enforcement.

G-I filed a Motion to Dismiss NYCHA’s Complaint for Injunctive and Declaratory Relief on November 7, 2012, arguing that NYCHA is improperly attempting to reclassify its Asbestos Property Damage Claims as post-petition and non-dischargeable claims nearly three years after G-I’s Plan of Reorganization became effective. G-I contends that NYCHA's Complaint circumvents the treatment of its claims under the confirmed Plan, which categorizes them as Class 7, pre-petition, unsecured claims payable only at 8.6%. The Motion highlights that the Plan does not provide for injunctive relief or administrative claims for pre-petition actions, and that NYCHA did not appeal the Plan’s confirmation, thus is precluded from challenging its provisions.

G-I asserts that NYCHA has consistently framed its claims as seeking compensatory money damages, referencing prior documents that suggest its claims do not support injunctive relief. The Motion outlines three main arguments for dismissal: (1) NYCHA’s claim for injunctive relief is barred and inadequately pleaded, (2) its claim for administrative expense treatment is also barred and inadequately pleaded, and (3) its claim for nondischargeability is time-barred under Bankruptcy Rule 4007(c).

Specifically, G-I argues that NYCHA’s claim for injunctive relief contradicts the Confirmation Order, as its Proof of Claim does not mention this type of relief and any unasserted equitable claims were discharged. G-I refutes NYCHA’s assertion that it had timely sought injunctive relief, emphasizing that established legal principles dictate that monetary damages suffice in such cases. G-I maintains that NYCHA’s claims are fundamentally for money damages and lacks sufficient pleading to justify injunctive relief, further characterizing NYCHA's attempt to convert pre-petition claims into post-petition claims as inconsistent with the Plan's terms.

NYCHA has not alleged sufficient facts to demonstrate that it will suffer irreparable harm without an injunction, as required for injunctive relief. G-I contends that even if the Confirmation Order and Plan do not bar NYCHA’s claim, it has inadequately pleaded for injunctive relief. The criteria for granting such relief include: (1) a likelihood of success on the merits; (2) irreparable harm if denied; (3) no greater harm to the nonmoving party; and (4) public interest favoring relief. G-I claims that NYCHA's delay in seeking an injunction undermines its assertion of imminent harm, particularly regarding environmental hazards that NYCHA has known about since at least the mid-1980s, yet waited until 2012 to act. G-I highlights that NYCHA has acknowledged its claims could be resolved with monetary damages, which generally precludes injunctive relief.

Additionally, G-I argues that NYCHA’s claim for administrative expense treatment is barred by the Confirmation Order, as NYCHA failed to file by the December 17, 2009 deadline and did not raise this issue in court. G-I states that NYCHA's claim does not meet the legal criteria for administrative expenses under 503(b) since it does not demonstrate that the expenses benefit the estate or arise from post-petition transactions. Finally, G-I asserts that NYCHA's claim for non-dischargeability is time-barred under Rule 4007(c), as it was filed more than eleven years after the deadline established following the creditors' meeting on January 31, 2001.

NYCHA filed a Memorandum of Law opposing G-I's Motion to Dismiss on December 10, 2012, arguing that the responsibility to investigate and implement safety measures lies with the Debtors. NYCHA's complaint seeks injunctive and declaratory relief, specifically: (1) an injunction for Debtors to address hazards related to asbestos-containing products, which NYCHA used based on Debtors’ misrepresentations about their safety, and (2) restitution for expenses incurred due to these misrepresentations. NYCHA contends that Debtors have been aware of the claims, which include restitution and indemnity, since October 31, 2008. 

NYCHA cites two court opinions affirming its claims for indemnity and restitution. In its opposition, NYCHA presents seven arguments: (1) the claims are timely; (2) the claim under 11 U.S.C. § 1141(d) was not discharged by the Confirmation Order; (3) G-I was aware of NYCHA’s request to abate asbestos products prior to plan confirmation; (4) leave to amend claims should be granted freely; (5) under Rule 9006(b)(1), NYCHA should be allowed to amend its Proof of Claim due to excusable neglect; (6) a debtor responsible for contamination cannot discharge that obligation in bankruptcy; and (7) NYCHA’s claim for injunctive relief is valid.

Regarding timeliness, NYCHA argues that its requests are not barred by Rule 4007(c) and can be filed at any time if the creditor was not scheduled and lacked notice, referencing In re Beaty. NYCHA asserts that the claims are non-dischargeable obligations and the Motion to Dismiss lacks evidence of potential prejudice to G-I if the complaint proceeds, arguing that without extraordinary circumstances, G-I’s time-bar defense should be dismissed.

NYCHA argues that its claim for non-dischargeability is timely under 11 U.S.C. § 523(a)(3)(B) because it was not listed as a creditor and was unaware of G-I's bankruptcy until September 2008. NYCHA contends that under § 523(c), it can file a complaint at any time regarding unlisted debts not discharged under the Bankruptcy Code's exceptions. It has provided evidence of acting quickly upon learning of the bankruptcy and asserts that G-I should not receive relief due to unclean hands for failing to notify NYCHA. NYCHA further claims that its allegations regarding G-I's predecessor's false pretenses do not fall under § 523(c) since that section applies to individuals, while denial of corporate debts under false pretenses is governed by § 1141(d)(6)(A). NYCHA accuses the Debtors of deceptive practices involving asbestos-related materials, asserting that such debts are non-dischargeable under § 1141(a)(6)(A). Additionally, NYCHA argues that the Confirmation Order does not discharge its claims due to the 2005 amendments to the Bankruptcy Code, which exempt certain claims from discharge. NYCHA emphasizes that G-I was notified prior to the Confirmation Order about its demand for asbestos abatement and argues that courts should liberally interpret pleadings to ensure substantial justice. Finally, NYCHA asserts that it should be allowed to amend its bankruptcy claim without prejudice or bad faith, clarifying its requests for injunctive relief and confirming that its claims have not changed.

Injunctive relief is deemed non-dischargeable based on precedent from *In re Torwico Electronics v. New Jersey Department of Environmental Protection*, and G-I’s actions under 'false pretenses' prevent the discharge of NYCHA’s claims under § 1141(d)(6)(A). NYCHA argues that, even under an 'excusable neglect' standard as per Rule 9006(b)(1), it should be allowed to amend its Proof of Claim, emphasizing that the bankruptcy court has discretion in this matter, referencing *In re Brown, 159 B.R. 710 (Bankr.D.N.J.1993)* for relevant factors. NYCHA maintains that G-I cannot demonstrate any prejudice from this amendment, as G-I did not rely detrimentally on the initial Proof of Claim.

Furthermore, NYCHA asserts that a debtor responsible for environmental contamination cannot discharge its remediation obligations in bankruptcy, distinguishing between cleanup cost orders and injunctions aimed at halting contamination. Citing cases such as *In re Chateaugay, 944 F.2d 997 (2d Cir.1991)* and *In re CMC Heartland Partners, 966 F.2d 1143 (7th Cir.1992)*, NYCHA argues that injunctions are equitable in nature and non-dischargeable, even if compliance requires financial expenditure. NYCHA supports its position with extensive case law indicating that injunctive relief for environmental cleanup is exempt from discharge. 

While G-I claims the Confirmation Order restricts claims under § 101(5) of the Bankruptcy Code, NYCHA contends that equitable remedies do not fall under the same category as the claims in *Torwico*. NYCHA insists that G-I’s obligation to remediate ongoing hazards, such as asbestos, stems from the principle that responsible parties must address threats to health and safety. Lastly, NYCHA argues that its claim for injunctive relief is valid, highlighting that Count I of its Complaint sufficiently alleges the necessary elements for a mandatory injunction to mitigate asbestos exposure, asserting an imminent threat to residents in NYCHA housing units supported by cases like *United States v. Waste Industries, Inc. 734 F.2d 159 (4th Cir.1984)*.

Cox v. City of Dallas establishes that an “imminent hazard” can arise from past events that still threaten public health or the environment. To secure injunctive relief, a party must demonstrate irreparable harm; however, NYCHA argues that in environmental or public health cases, the focus shifts to the public interest rather than solely on irreparable harm. NYCHA maintains its obligation to ensure safe, habitable buildings, while also emphasizing that G-I had responsibilities to test its products and issue warnings about associated dangers, referencing multiple legal precedents. 

NYCHA asserts that a manufacturer's failure to fulfill these duties creates an obligation to remediate the hazard. NYCHA counters G-I’s claim that delays in seeking injunctive relief undermine allegations of irreparable harm, stating that for permanent injunctions, the potential degree of harm is more critical than timing. The standard for irreparable harm, according to NYCHA, relates to the quality of harm being irremediable by monetary compensation, not merely the quantity. 

Additionally, NYCHA seeks reimbursement for costs incurred to prevent contamination during repair work on products from G-I’s predecessors, asserting that this claim is one of restitution in equity rather than law. NYCHA cites legal principles indicating that restitution arises from preventing unjust enrichment and that it should not bear the costs of responsibility that rightfully belong to others. The distinction between restitution and indemnity is emphasized, noting that under New York law, a party like NYCHA should not be penalized for assuming another's responsibilities.

NYCHA claims that expenses incurred after the bankruptcy petition qualifies as administrative expenses under 11 U.S.C. § 503(b)(1)(A), regardless of whether the confirmed plan explicitly states the bankruptcy estate's continuation. Citing case law, including *In re Virginia Builders* and *Midlantic Nat’l Bank v. New Jersey Dept. of Environmental Protection*, NYCHA argues that its post-petition expenses, and potentially pre-petition expenses related to restitution and indemnity, should be evaluated at a hearing where evidence can be presented. NYCHA identifies itself as a governmental unit under 11 U.S.C. § 101(27) that has incurred significant costs for asbestos risk prevention and asserts it is not bound by limitations from *In re G-I Holdings*, which denied a private party’s claim for post-petition cleanup costs as administrative expenses.

In response, G-I contends that NYCHA's claim for injunctive relief was discharged three years prior by the Confirmation Order and Plan, which also discharged all claims and equitable remedies under 11 U.S.C. § 101(5). G-I argues that NYCHA had notice of the Plan and its objection was overruled. Furthermore, G-I asserts that NYCHA incorrectly relies on 11 U.S.C. § 1141(d)(6)(A) regarding debts owed to governmental units, stating this provision is not retroactive as it was enacted in 2005, and therefore, the court need not consider its applicability to NYCHA’s claims.

G-I contends that NYCHA’s late claim for a non-dischargeable equitable remedy is barred by laches due to a significant delay of three years in filing. At the time G-I and the Asbestos Claimants Committee settled their litigation, NYCHA had not filed a claim for injunctive relief or a substantial non-dischargeable claim, which G-I argues would have changed the settlement terms. G-I asserts that NYCHA’s claim for mandatory injunctive relief, if considered an amendment to its Proof of Claim, is nonetheless prohibited by the Confirmation Order and Plan. G-I distinguishes NYCHA's current request for injunctive relief from its original claim for monetary damages, arguing that it represents a fundamentally different demand that requires G-I to manage NYCHA's abatement program and comply with specific regulations.

NYCHA attempts to invoke the "excusable neglect" standard for filing a new claim, but G-I points out that this standard applies only before plan confirmation. Additionally, G-I argues that even if NYCHA's request were treated as an amendment, it would still be barred post-confirmation, as courts often deny such amendments. G-I highlights that NYCHA has not justified its three-year delay in seeking to amend its Proof of Claim.

G-I further refutes NYCHA's assertion that it was on notice regarding potential claims for injunctive relief, arguing that vague references in a 2009 Mock Complaint do not satisfy the requirement to formally plead a claim or adhere to bar dates. G-I also argues that NYCHA cannot use environmental enforcement precedents to escape claim discharge, as the Confirmation Order and Plan expressly discharged all equitable remedy rights, which NYCHA failed to contest adequately. G-I concludes that NYCHA is neither a regulatory agency with police powers nor has it brought claims under applicable federal or state laws that would necessitate G-I's action regarding asbestos removal.

G-I contends that NYCHA's claim for injunctive relief is not viable, arguing that NYCHA's long delay in seeking such relief undermines the demonstration of irreparable harm, referencing the case Henry v. St. Croix Alumina. G-I asserts that NYCHA’s reimbursement requests for asbestos abatement and replacement indicate that any potential claim could be remedied with monetary damages, which negates the need for injunctive relief. G-I critiques NYCHA's reliance on environmental statutes to support its claim, stating that the alleged harm from asbestos is only a risk when the materials are disturbed, and emphasizes that NYCHA has not adequately shown that the public interest would be better served by granting the injunction. G-I further argues that NYCHA's claim for administrative expense treatment should be dismissed as time-barred and insufficiently pleaded, claiming that NYCHA failed to establish that its post-petition expenses were necessary for preserving the estate, nor that such expenses arose from transactions with the debtor-in-possession. G-I disputes NYCHA's assertion of its governmental status and references the Novak Landfill case to argue that costs for remediating contamination on property not owned by a debtor cannot qualify for administrative expense status. In response, NYCHA's Sur-Reply asserts that its claim for injunctive relief has been known to G-I and the Court since before the November 2009 Plan Confirmation, citing judicial opinions that support the importance of addressing hazardous risks. NYCHA maintains that its demand for relief was not discharged and likely remains non-dischargeable.

NYCHA asserts that its requests for restitution, indemnity, and injunctive relief are not barred by the Confirmation Bar Order for two main reasons. First, it contends that a demand for environmental injunctive relief is not classified as a "claim" under the Bankruptcy Code, thus exempt from discharge. NYCHA argues that its concerns about asbestos pose a public health issue, allowing it to seek equitable relief under its police powers, as supported by Third and Second Circuit case law, including Chateaugay and Torwico. It emphasizes that its requests for restitution and indemnity are equitable remedies, not demands for payment. 

Second, NYCHA asserts that 11 U.S.C. § 101(5)(B) does not apply, as its demand does not pertain to a right to equitable relief for breach of performance that necessitates payment. NYCHA emphasizes that under New York law, breach of performance is relevant only in contractual contexts, while its claims are rooted in equity. It clarifies that it is not pursuing relief based on breach of contract but rather seeking an injunction for remediation of future asbestos issues. 

Additionally, NYCHA maintains that its claims are timely given the ongoing threat from the Debtors' defective product and challenges the applicability of laches, citing a lack of prejudice due to Debtors’ failure to notify NYCHA of the bankruptcy. Finally, NYCHA clarifies that it is not an agent of New York City but an independent governmental entity established by New York’s Public Housing Law.

GI contends that injunctive relief is unnecessary since NYCHA is already complying with asbestos regulations and seeks only monetary damages. NYCHA counters that failing to implement preventative measures would cause irreparable harm and emphasizes the need to balance the interests of both parties and public welfare. During a hearing on February 26, 2013, GI's counsel argued that NYCHA's claims attempt to bypass the Plan's stipulation that all claims be treated as Class 7 pre-petition unsecured claims, which receive 8.6% treatment. GI maintains that NYCHA's recharacterization of its claims as injunctive rather than monetary seeks full compensation, contrary to the confirmed Plan of Reorganization. Counsel for GI noted that the Bankruptcy Code promotes a fresh start for debtors and highlighted a lack of precedent for enjoining a confirmed debtor to remediate asbestos. GI argued that NYCHA's claim qualifies as an "asbestos property damage claim" under the Plan, making it subject to Class 7 treatment. GI asserted that the definition of "Claim" within the Plan, which includes equitable remedies, is definitive and binds NYCHA, who had prior notice of the Plan. While NYCHA claims under the Bankruptcy Code, GI argues that the environmental remedies issue is not before the Court.

Injunctive claims, potentially non-dischargeable, can be initiated by environmental agencies like the EPA or state equivalents such as the New Jersey Department of Environmental Protection. G-I contends that NYCHA lacks the necessary regulatory authority and police power for such claims. They argue that precedents, specifically the Torwico and Chateaugay cases, are narrowly focused on environmental agencies using injunctive powers to address ongoing pollution, distinguishing between the state's role as a creditor versus a regulator. G-I posits that NYCHA's request for compensation for increased renovation costs due to asbestos constitutes a claim under the Bankruptcy Code, referencing the Supreme Court case Ohio v. Kovacs, which recognized environmental cleanup costs as claims. G-I further draws parallels between NYCHA and the Novak Group from the Novak Landfill case, noting both lack inherent regulatory authority. 

G-I argues that NYCHA has not met the legal standards required for injunctive relief, particularly failing to demonstrate irreparable harm. They highlight a draft complaint from NYCHA dated January 2009, which was never filed, seeking extensive monetary damages, including punitive damages and a declaratory judgment regarding future asbestos-related costs, without requesting injunctive relief. G-I's counsel noted that NYCHA's draft aimed to clarify its claims against G-I in bankruptcy. Additionally, G-I asserts that NYCHA's concerns about notice regarding G-I's bankruptcy filings are irrelevant, emphasizing that NYCHA had notice of the Plan and an opportunity to object, which they did, but their objection was ultimately overruled following modifications to the Plan.

G-I’s counsel criticized NY-CHA for a pattern of missing substantive deadlines, arguing that NY-CHA's tort claims are time-barred since no administrative claim was filed until three years after the deadline. G-I contended that NYCHA failed to identify its claim as non-dischargeable before the deadline and improperly relied on a statute (11 U.S.C. § 1141(d)(6)(A)) that does not apply to it. G-I emphasized that the relevant statute prior to the 2005 BAPCPA amendments, which lacks a non-dischargeable subsection for government debts based on false pretenses, should govern this case. G-I further asserted that any late assertion of non-dischargeability under 523(a)(3)(B) should fail due to timeliness and merit issues, noting NYCHA's long-standing awareness of asbestos in its buildings since the 1980s, which G-I argued should bar the claim under the doctrine of laches.

G-I highlighted the potential impact of a $500,000,000 non-dischargeable claim on the confirmation of the reorganization plan, asserting that such claims were not intended to survive the plan and that NYCHA's claims were categorized under Class 7. G-I pointed out that even if NYCHA had a theoretically valid claim under § 523, it was raised too late, after the plan was confirmed. Regarding NYCHA's request for administrative expense claim status under § 503(b), G-I noted that NYCHA had abandoned this argument. G-I also referenced the Seventh Circuit’s Holstein v. Brill decision, which stated that amendments to claims post-confirmation of a plan are not typically allowed. Consequently, G-I argued that only the question of NYCHA's injunctive relief claim remained after dismissing the non-dischargeability and administrative claim arguments. NYCHA's counsel indicated that the core issue is whether NYCHA's claim constitutes a demand for payment, emphasizing the sensitivity of environmental claims and outlining key discussion points for upcoming oral arguments.

NYCHA's request is being evaluated to determine if it qualifies as a claim under § 101(5) or if it is a non-dischargeable obligation since it does not seek payment. NYCHA has articulated a proof of claim for $500 million that includes property damage claims based on various causes of action such as negligence and breach of warranty. Although the term "injunction" was not explicitly mentioned, NYCHA's claims imply a demand for equitable relief, which is supported by case law indicating that claims to compel remedial action for hazardous substances should not be disregarded. This challenges G-I’s argument about laches and shows no prejudice to G-I since the same evidence applies to both NYCHA's restitution and indemnity claims. 

NYCHA's counsel referenced the Seventh Circuit's Apex Oil decision, asserting that compliance costs with equitable relief are non-dischargeable, distinguishing it from Kovacs where a judgment created a current right to demand payment. NYCHA is focusing on future environmental issues rather than past violations, further differentiating its case. G-I’s counsel acknowledged that the Plan's definition of “Claim” is broader than the Code’s definition, claiming that all of these equitable claims fall under that broader definition. NYCHA's counsel assumed G-I would adhere to the definitions set forth in the applicable legal framework.

Counsel for NYCHA presented a legal analysis focusing on environmental injunction cases, specifically referencing Kovacs, Johns-Manville, Nicolette, Chateaugay, Torwico, Mark IV, and Apex Oil. It was emphasized that these cases differentiate between past harms, which NYCHA acknowledged as potentially dismissed, and future harms that are non-dischargeable. The critical issue is whether NYCHA's claims are liquidated past claims or un-liquidated future rights. Counsel argued that an injunction sought by NYCHA should not be classified as a money damages claim, citing Ben Franklin Hotel Associates to support the position that quantifiable costs do not equate to damages. The remediation process is ongoing, not a one-time event.

Further, counsel referenced New York statutes mandating NYCHA to implement safety measures for asbestos removal, highlighting the immediate health risks posed by non-compliance, which underscores the harm is not theoretical. Regarding bankruptcy claims, counsel asserted that NYCHA's case is grounded in equity, not contract, and that restitution claims require a current right to payment, which NYCHA does not possess. Under Bankruptcy Rule 7001(7), injunctions must be pursued through an Adversary Proceeding unless specified in a plan, advocating for NYCHA's right to proceed with its Complaint. The Court expressed concerns over NYCHA’s regulatory authority, drawing parallels to the Novak Group’s situation in Novak Landfill, noting the distinction between regulators and creditors, which impacts relief eligibility in bankruptcy contexts. Counsel differentiated between RCRA and CERCLA cases regarding contaminations in Kovacs and Novak Landfill, reinforcing the nuances in their legal standings.

CERCLA allows for the recovery of costs related to past pollution, while RCRA does not provide a direct right to payment but allows for penalties for ongoing pollution. Counsel for G-I contended that NYCHA’s claims relate to past contamination, as G-I’s predecessors sold products containing asbestos that were installed in NYCHA buildings prior to the early 1980s. NYCHA's current costs for compliance during renovations stem from these past actions, which are classified as pre-petition acts. G-I emphasized that NYCHA was aware of potential claims regarding contamination at least three years before filing the petition and that no ongoing pollution exists since the relevant products have not been sold since the early 1980s. G-I argued that the critical issue is the sale date of the products, not their removal, and asserted that NYCHA failed to act on any valid claims. Furthermore, G-I highlighted the broad definition of “claim” under the Bankruptcy Code and referenced the Tonuico case, distinguishing between creditor actions for remediation costs and regulatory actions to prevent future pollution. G-I pointed out that NYCHA lacks regulatory authority and cannot compel G-I to remediate under existing laws. G-I maintained that NYCHA’s claims are equitably grounded and subject to the Plan's provisions, which classify NYCHA's claims as Class 7 with limited treatment, while extinguishing other claims. In response, NYCHA disagreed with G-I's interpretation that past costs do not create current obligations.

Counsel cited William Ewing's certification, indicating that future removals will release asbestos, and emphasized that NYCHA possesses both statutory and common law rights under New York law to pursue indemnity and injunction. The legal standards for a motion to dismiss under Federal Rule of Civil Procedure 8(a) require a clear statement of jurisdiction, a claim for relief, and a demand for relief. Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss may be granted if the complaint fails to state a claim, with courts required to accept well-pleaded allegations as true and view them favorably to the plaintiff. A complaint must present sufficient factual matter to establish a plausible claim for relief, following a two-step analysis: rejecting conclusory allegations and assessing whether the facts support an entitlement to relief. Courts typically consider only the complaint's allegations, attached exhibits, public records, and documents foundational to the claim. Lastly, Section 1141 of the Bankruptcy Code addresses the effects of confirming a chapter 11 plan.

A confirmed bankruptcy plan is legally binding on a wide range of entities, including the debtor, any securities issuers, property acquirers, and all creditors and equity holders, regardless of whether their claims are impaired or if they accepted the plan. This binding nature is supported by the principle of res judicata, treating a confirmation order as a final judgment. Creditors can review and respond to a proposed plan before confirmation, but once confirmed, they are bound by its terms. 

The term "claim" under the Bankruptcy Code is defined broadly to encompass any right to payment or equitable remedy for breach of performance, irrespective of its status (e.g., liquidated, contingent, disputed). This wide definition aims to address all legal obligations of the debtor and allows for extensive relief in bankruptcy cases. The Supreme Court and various lower courts have affirmed this broad interpretation, emphasizing that a claim arises when a party is exposed to circumstances leading to a right to payment, as clarified in recent rulings.

In Midlantic National Bank v. New Jersey Department of Environmental Protection, the Supreme Court determined that the Bankruptcy Code does not allow a trustee to abandon property in violation of state regulations designed to protect public health from environmental hazards. The Third Circuit echoed this sentiment, emphasizing the importance of considering environmental compliance in bankruptcy cases. The discussion includes the treatment of environmental injunctive relief as a “claim” under the Bankruptcy Code.

In Ohio v. Kovacs, the Supreme Court ruled on whether an environmental cleanup injunction constituted a dischargeable claim in bankruptcy. The case involved the State of Ohio seeking compliance from Kovacs to clean up a hazardous waste site, which led to the appointment of a receiver when Kovacs failed to comply. After Kovacs filed for bankruptcy, Ohio attempted to assert that his cleanup obligation was non-dischargeable. The bankruptcy and appellate courts determined that the obligation was a dischargeable liability on a claim, as it effectively required monetary payment. The Supreme Court affirmed this ruling, stating that the State had a right to equitable relief, which was transformed into a judgment through the injunction, thus qualifying it as a claim under the Bankruptcy Code.

The statute does not restrict the right to performance as a claim solely to contractual arrangements. The Bankruptcy Court, as referenced, indicated that the State of Ohio's claim against Kovacs is valid under 11 U.S.C. § 101(4) and that Kovacs owes a dischargeable debt under § 101(11). The Supreme Court affirmed that Kovacs’ obligation was monetary, arising from his cleanup duty, which is dischargeable in bankruptcy. However, the Court clarified that this ruling pertains only to the duty to pay for cleanup and does not exempt anyone in possession of the site from complying with environmental laws. 

In the case of Novak Landfill RD/RA Group v. G-I Holdings, the EPA mandated G-I and other companies to clean up a landfill where they disposed of hazardous waste, despite G-I not owning or operating the site. Following G-I’s bankruptcy filing, the Novak Group sought to compel G-I to pay its share of remediation costs as an administrative expense under § 503(b) of the Bankruptcy Code. The bankruptcy court ruled that the EPA’s order indicated an imminent threat to health and the environment but denied the Novak Group's claim for priority as an administrative expense. This decision was affirmed on appeal, which also included cross-appeals regarding the disallowance of claims for future costs.

The District Court reversed the bankruptcy court's final decision on the Novak Group's claim for future cleanup costs, recognizing that the situation differed significantly from the Torwico case. Unlike the EPA in Torwico, which sought an injunction as a regulator to address ongoing hazards, the Novak Group, as a private entity, was acting solely as a creditor seeking reimbursement for its contractual obligation to remediate a hazardous site. Consequently, the Novak Group’s claim was classified as unsecured and not entitled to priority as an administrative expense. The court emphasized that, despite the Novak Group’s assertion regarding the nature of G-I's obligations running with the waste, their claim did not constitute a priority claim.

The District Court further analyzed the Kovacs case, noting parallels in which the Novak Group sought monetary contributions from G-I for cleanup costs. The court also discussed relevant case law indicating that environmental injunctions may not qualify as "claims" in bankruptcy. In In re CMC Heartland Partners, the Seventh Circuit determined that orders from the EPA under CERCLA for cleanup obligations tied to land ownership survived bankruptcy. The court highlighted that for the EPA to avoid reclassifying its claims, it must demonstrate an ongoing or imminent threat to public health or the environment. Additionally, in In re Chateaugay, the Second Circuit considered the dischargeability of environmental claims during Chapter 11 proceedings.

The Second Circuit determined that response costs incurred by the EPA under CERCLA are considered "claims" dischargeable in bankruptcy if they relate to hazardous waste releases occurring before a debtor's Chapter 11 filing. The court differentiated between injunctions that mandate cleanup and those that merely impose monetary obligations. Specifically, if the EPA incurs cleanup costs, it may seek payment; however, it cannot accept payment from a responsible party as a substitute for ongoing pollution. Cleanup orders that aim to remove waste and prevent continued pollution do not constitute dischargeable claims. An order requiring cleanup is a claim if it imposes obligations separate from those aimed at stopping pollution, as the creditor has the option under CERCLA to perform the cleanup and sue for costs. The court clarified that the Supreme Court's ruling in Kovacs does not negate the classification of injunctive relief as a claim; rather, CERCLA allows for a right to payment when cleanup is the sole focus. In the related case of In re Torwico Electronics, the debtor faced an Administrative Order from NJDEPE regarding hazardous waste violations, which explicitly stated that the obligations were not debts subject to discharge in bankruptcy, emphasizing the state's police powers to protect public health and the environment.

Torwico argued that NJDEPE should be barred from imposing liability for environmental cleanup, claiming that the obligations under the administrative order and relevant state statute were “claims” under 11 U.S.C. 101(5). Torwico maintained that the state’s failure to file a proof of claim in a timely manner absolved the debtor of responsibility. NJDEPE contended it did not seek a right to payment, but rather aimed to enforce regulatory compliance to address hazardous waste, characterizing the issue as regulatory enforcement and not a bankruptcy claim. 

The Third Circuit Court of Appeals reviewed the cases of CMC Heartland and Chateaugay, concluding that Torwico's obligations under the administrative order did not constitute a claim. Citing Kovacs, the court affirmed that the state could compel compliance with its laws, even if compliance incurred costs for the debtor, but clarified that the state could not act as a creditor in seeking payment. The court determined that NJDEPE's authority was limited to enforcing environmental laws rather than demanding payment, thus affirming that its enforcement actions did not constitute a claim under the Bankruptcy Code.

The court recognized exceptions where cleanup injunctions could be deemed claims, particularly when the state acts as a creditor rather than a regulator. It referenced CMC Heartland’s stipulation that orders must arise from ongoing threats, not just claims for damages, and Chateaugay’s position that obligations distinct from halting pollution could constitute claims if the government could have performed the cleanup and sought reimbursement. The excerpt also mentions a related case, United States v. Apex Oil, Co., where the U.S. sought injunctive relief for cleanup under RCRA.

The District Court found that millions of gallons of trapped oil were contaminating groundwater and creating health and environmental hazards, leading to the issuance of an injunction. Apex Oil appealed this decision, but the Court of Appeals ruled that the government's claim for the injunction was not discharged in bankruptcy. The Circuit Court clarified that RCRA does not allow for monetary relief but only equitable remedies, meaning the government's injunction did not qualify as a monetary claim and thus was not dischargeable in bankruptcy.

Regarding amendments to proofs of claim, Federal Rule of Bankruptcy Procedure 7015 adopts the standards from Federal Rule of Civil Procedure 15. Timely filed claims can be amended if they arise from the same conduct, transaction, or occurrence as the original claim. After the bar date, parties need court permission to amend. The Bankruptcy Court has discretion in allowing these amendments, which should be granted freely unless they cause prejudice to the opposing party. Amendments after the bar date must strictly relate to the original claim and not introduce new claims. Courts evaluate these amendments based on the principles established in Fed. R.Civ. P. 15(c).

Amendments to claims are permissible when the original claim sufficiently notifies the existence, nature, and amount of the claim. They are typically used to correct defects, provide more detailed descriptions, or introduce new theories based on original evidence. To be valid after the bar date, amendments must relate back to the initial filing under Fed. R. Civ. P. 15(c); otherwise, they are treated as new claims and are not allowed. Courts apply an equitable test when the amendment exceeds mere correction, assessing factors such as prejudice, delay, and bad faith, with a primary focus on potential prejudice to other parties.

In Holstein v. Brill, the Seventh Circuit noted the rarity of allowing claim increases post-confirmation of a reorganization plan, emphasizing that inattention or calculation errors do not warrant amendments. While early amendments are generally encouraged, significant milestones such as the bar date and confirmation of the plan make later amendments less appropriate. The court cautioned that post-confirmation amendments could disrupt proceedings and affect distributions to creditors, asserting that the time to state debt amounts is before confirmation.

The Eleventh Circuit in In re Winn-Dixie Stores, Inc. echoed this sentiment, stating that while post-confirmation amendments are not outright prohibited, they are disfavored and require compelling justifications. Other cases, including In re Nextmedia Group Inc. and In re Szostek, reinforced the notion that once a reorganization plan is confirmed, it achieves finality, limiting the scope for subsequent amendments.

Failure to pay a creditor does not constitute grounds for relief unless there is evidence of fraud, as stated in 11 U.S.C. § 1330(a). The court highlighted that while the Third Circuit has not ruled specifically on post-confirmation amendments, the Eleventh Circuit, following the Seventh Circuit, has determined that res judicata prevents such amendments unless there is a compelling reason. If a party is deemed to be asserting a new claim rather than amending a timely filed claim, the court must evaluate the request under Bankruptcy Rule 9006(b)(1), which allows late filings if the failure to act was due to excusable neglect. The Supreme Court's decision in Pioneer Investment Services Co. v. Brunswick Associates defines “excusable neglect” as an equitable determination that considers factors such as potential prejudice to the debtor, duration of the delay, reasons for the delay, and the movant's good faith. The claimant bears the burden of proving excusable neglect. 

Further, under 11 U.S.C. § 1141(a), a confirmed plan binds all relevant entities, including creditors, as established in In re Szostek and supported by the Supreme Court in Stoll v. Gottlieb. In this case, the New York City Housing Authority (NYCHA) is bound by the confirmed Plan, which discharges all claims against the Debtors’ estates upon the Effective Date. The Confirmation Order specifies that all claims arising before this date are permanently barred, regardless of whether a proof of claim was filed, reinforcing the finality of confirmed plans.

Paragraph 1.1.43 of the Plan of Reorganization defines "Claim" broadly, encompassing any rights against G-I or ACI, including those under sections 502(g), 502(h), and 502(i) of the Bankruptcy Code, as well as Environmental Claims and rights to equitable remedies. NYCHA holds an "asbestos property damage claim," defined in paragraph 1.14, which includes any potential claims or liabilities related to asbestos, regardless of their legal status or whether they are known or unknown. This encompasses various forms of damages, including compensatory and punitive damages, as well as claims for reimbursement and indemnification.

The Plan’s discharge provision in paragraph 9.2 states that all claims against the Debtors will be discharged on the Effective Date, preventing holders from asserting any further claims based on pre-Effective Date events. Consequently, NYCHA's asbestos property damage claim is classified as a Class 7 claim, receiving 8.6% of the allowed claim amount per paragraph 3.12(b). As a result, any claims for asbestos property damage outside this classification, including those seeking equitable remedies, are extinguished by the Plan and the Confirmation Order. Therefore, NYCHA is barred from pursuing any equitable relief, such as injunctive relief, in the current adversary proceeding.

The Court has concluded that the Plan is binding on the New York City Housing Authority (NYCHA), which bars NYCHA from seeking equitable remedies. Consequently, the Court does not need to determine if NYCHA's request for injunctive relief qualifies as a claim under the Bankruptcy Code. However, it finds that NYCHA's request does constitute a claim under § 101(5) of the Bankruptcy Code and is thus dischargeable under the Debtors’ confirmed Plan.

The Court reviews various cases regarding injunctions in environmental matters, noting a divergence in rulings based on context. It emphasizes that obligations to address ongoing threats from regulatory agencies do not constitute claims, whereas other obligations may. The Novak Landfill case is highlighted as particularly relevant; it involved a private entity without regulatory authority seeking injunctive relief, contrasting with NYCHA, which, while a state agency, lacks police or regulatory powers to enforce compliance against G-I.

NYCHA is obligated to remediate as per state regulations, but it cannot compel G-I to act. The Court distinguishes the current matter from the Torwico case, where the Third Circuit found the injunction non-dischargeable because the state acted within its regulatory capacity rather than as a creditor. In contrast, NYCHA is seen as pursuing monetary compensation from the Debtors, not exercising regulatory powers. This distinction is critical in determining the nature of NYCHA's claim under the Bankruptcy Code.

The court determined that NYCHA is acting as a creditor, seeking monetary contributions for G-I’s share of cleanup costs related to past contamination rather than acting as a regulator. NYCHA has no regulatory power, and the obligation to remediate falls on it, not G-I. The claim is consistent with the Novak Landfill case, where a similar creditor status was established. NYCHA's claims stem from pre-petition acts, specifically the sale and placement of asbestos-containing materials in its buildings, which occurred prior to the early 1980s. The court emphasized that the relevant issue is the timing of the product sales, not the timing of NYCHA’s renovations. NYCHA's request for injunctive relief does not aim to address ongoing pollution but rather seeks compensation for past contamination, which has been discharged under the Debtors’ confirmed Plan, except as specifically allowed. The court also addressed the amendment of NYCHA's proof of claim, noting that post-confirmation amendments should only be permitted for compelling reasons, drawing on precedents from Holstein v. Brill and In re Nextmedia Group Inc.

The court determined that amending a claim post-confirmation of a plan of organization generally requires a showing of good cause. Although the Third Circuit has not directly tackled this issue, the Eleventh Circuit has ruled that res judicata limits post-confirmation amendments unless a compelling reason is presented. In this case, the court found no compelling reason for NYCHA to amend its proof of claim three years after confirmation of the Plan of Reorganization. NYCHA did not justify its delay, and the court agreed with G-I that the proposed amendment would offer no utility as NYCHA is bound by the Plan's terms. 

The court also assessed whether NYCHA was attempting to assert a new claim rather than amend its existing claim. Amendments made after the bar date necessitate careful scrutiny to confirm they are genuine modifications of timely filed claims. This review is guided by the “excusable neglect” standard, which considers factors such as potential prejudice to the debtor, the length of delay, reasons for the delay, and the movant's good faith. The court concluded that NYCHA's demand for injunctive relief constituted a new claim, substantially different from its original claims for monetary restitution and indemnity. NYCHA's new demands, which included operational responsibilities regarding an abatement program, would likely cause prejudice to the Debtors if allowed.

NYCHA failed to provide a timely explanation for its three-year delay in raising a claim, resulting in its inability to meet the burden of proof required for leave to file a late claim. The court noted that it need not consider NYCHA's argument for administrative expense treatment since NYCHA conceded the weakness of that claim during the February 26, 2013 hearing. Additionally, NYCHA acknowledged that 11 U.S.C. § 1141(d)(6)(A) is inapplicable to its case and abandoned its assertion regarding the non-dischargeability of claims under this provision. The applicable version of the statute is the pre-BAPCPA version, which does not contain subsection six, and Congress specified that BAPCPA amendments are not retroactive. Consequently, NYCHA's claims were deemed implausible, leading to the granting of G-I Holding's Motion to Dismiss with prejudice. An order will be issued in line with this opinion.