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Abstract: Nearly 40 years ago, the United States Supreme Court decided Midlantic National Bank v. New Jersey Department of Environmental Protection (“Midlantic”). In Midlantic, a narrow (5-4) majority of the justices held that a trustee in bankruptcy may not abandon property in contravention of state laws or regulations reasonably designed to protect the public's health and safety. In effect, the justices read a public-interest exception into the Bankruptcy Code provision governing abandonment of property, an exception that the four dissenting justices characterized as “ill-defined and uncertain.”
In the years since Midlantic, the lower courts have sought to give this exception definition and clarity. However, much uncertainty remains as to the scope and applicability of the Midlantic exception. To avoid this uncertainty, debtors in bankruptcy have devised creative ways to construct settlements and trusts such that outright abandonment of property occurs less frequently than might be expected.
Like many of the Supreme Court's bankruptcy opinions, the Midlantic opinion sticks closely to addressing the issue before the Court. Consequently, in the years since the Court's decision, questions have arisen about when, whether, and how a trustee in bankruptcy (or debtor-in-possession) may abandon environmentally contaminated or hazardous property. This article considers several of these questions in light of the developing case law and also asks whether Midlantic would be decided the same way today should the issue again reach the Court.
The article proceeds as follows. Part II provides some background on the Bankruptcy Code's abandonment provision and on the Court's reading of that provision in Midlantic. Part III discusses how Midlantic has generated confusion, creativity, and in some cases, consensus among practitioners and the lower courts. Part IV analyzes questions that remain unresolved as the Midlantic decision approaches its 40th birthday, while Part V provides a brief conclusion.
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