## Facts

- Smith-Douglass, Inc., a fertilizer manufacturer, operated a facility in Streator, Illinois with violations of Illinois environmental law.
- In 1981, Garrett Acquisition Corporation acquired certain assets (including the Streator facility) and was renamed Smith-Douglass, Inc.; Wells Fargo financed the purchase and took a first lien on the properties.
- Smith-Douglass filed for Chapter 11 bankruptcy on March 11, 1983, later leasing the Streator plant to SECO, Inc., which ceased operations there in August 1985.
- Smith-Douglass could not reorganize; Wells Fargo provided post-petition financing during liquidation, and the estate had no unencumbered assets.
- The debtor attempted unsuccessfully to sell the Streator facility privately and by public auction; by mid-1986 it was the only remaining estate property.
- Environmental conditions included contaminants entering a nearby creek, causing unnatural sludge and turbidity.
- The debtor (and later the Chapter 7 trustee) sought to abandon the Streator facility under 11 U.S.C. § 554 as burdensome and of inconsequential value.
- The State of Illinois, Borden (a former owner), and Garrett objected, arguing abandonment would leave environmental violations unremedied and shift cleanup burdens.

## Issues

1. Whether a bankruptcy trustee may unconditionally abandon property under 11 U.S.C. § 554 when the property violates state environmental laws.
2. Whether the limitation on abandonment recognized in Midlantic bars abandonment absent an imminent and identifiable threat to public health or safety.
3. Whether the absence of unencumbered estate assets affects the conditions under which abandonment may be permitted.

## Decision

- The Fourth Circuit affirmed the district court, which had affirmed the bankruptcy court’s order permitting unconditional abandonment of the Streator facility.
- The court held Midlantic restricts abandonment only in narrow circumstances involving an imminent and identifiable threat to public health or safety.
- Because the record did not establish such an imminent and identifiable threat, and the estate lacked unencumbered assets to fund compliance, unconditional abandonment was permissible.

## Legal Principles

- Under 11 U.S.C. § 554, a trustee may abandon property that is burdensome to the estate or of inconsequential value and benefit to the estate.
- Midlantic limits abandonment only where abandonment would contravene laws designed to protect public health or safety from identified hazards presenting an imminent and identifiable threat.
- Environmental violations alone do not categorically bar abandonment; the relevant inquiry is whether conditions present an imminent and identifiable threat to public health or safety.
- A court should avoid interpreting Midlantic or the Bankruptcy Code to create an unwritten superpriority requiring environmental remediation from an administratively insolvent estate lacking unencumbered assets.

## Conclusion

The Fourth Circuit permitted unconditional abandonment of a contaminated facility because the environmental violations did not amount to an imminent and identifiable public health or safety threat under Midlantic, and the bankruptcy estate had no unencumbered assets to pay for remediation.


In re Smith-Douglass, Inc., 856 F.2d 12 (4th Cir. 1988)