## Facts

- Wall Tube & Metal Products Company operated a manufacturing facility in Newport, Tennessee, generating hazardous wastes that were drummed and stored on-site.
- After Wall Tube ceased operations in October 1983, the Tennessee Department of Health & Environment (TDHE) inspected the property and found hazardous substances improperly stored, including an open tank of 1,1,1-trichloroethane and drums containing lime sludge and acidic “pickle liquor.”
- TDHE issued a notice of violation under Tennessee hazardous-waste law; subsequent inspection found the condition largely unchanged.
- Wall Tube filed a voluntary Chapter 7 petition on February 22, 1984; the trustee received TDHE’s inspection report and had notice of the hazardous conditions and ongoing violations.
- Further state inspection and contractor evaluation found waste dumped, spilled, or leaking inside and outside buildings and concluded that threatened releases posed severe health risks.
- Tennessee conducted cleanup actions under CERCLA and sought allowance and priority payment of its response costs as administrative expenses under 11 U.S.C. § 503(b)(1)(A), with first priority under § 507(a)(1).
- The bankruptcy court, affirmed by the district court, denied administrative status and treated the claim as a general unsecured claim, reasoning the cleanup did not “preserve” the estate and that environmental compliance duties did not apply to a liquidating Chapter 7 trustee.

## Issues

1. Whether a Chapter 7 trustee may retain and administer estate property in a condition that continuously violates state environmental laws protecting public health and safety after receiving notice of the violation.
2. Whether a state’s post-petition CERCLA response costs to remediate hazardous conditions at estate property qualify as “actual, necessary costs and expenses of preserving the estate” under 11 U.S.C. § 503(b)(1)(A) and therefore receive first priority under § 507(a)(1).

## Decision

- The Sixth Circuit reversed and remanded.
- It held that a Chapter 7 trustee may not maintain or possess estate property in ongoing violation of state environmental laws aimed at protecting public health and safety.
- It held that Tennessee’s CERCLA response costs were allowable as administrative expenses under § 503(b)(1)(A) and entitled to first priority under § 507(a)(1).

## Legal Principles

- Bankruptcy administration does not permit the estate to be kept in continuous violation of nonbankruptcy health and safety laws; trustees must account for such laws when controlling estate property.
- Environmental response costs incurred post-petition to address unlawful, hazardous conditions at estate property can constitute “actual, necessary” costs of preserving the estate when compliance is required for lawful possession and administration.
- Administrative-expense status is not limited to expenditures that increase estate value; costs that are unavoidable incidents of administering the estate in compliance with law may qualify.
- The obligation to avoid ongoing public-health hazards applies in Chapter 7 liquidation and is not confined to trustees “operating” a business.

## Conclusion

The Sixth Circuit required administrative-expense priority for Tennessee’s post-petition CERCLA cleanup costs because the bankruptcy estate could not lawfully be administered while the trustee retained property in ongoing violation of state environmental laws that protected public health and safety.


In re Wall Tube & Metal Prods. Co., 831 F.2d 118 (6th Cir. 1987)