## Facts

- Torwico Electronics, Inc. operated a manufacturing business in Ocean County, New Jersey on leased property and moved to a new location in 1985.
- In August 1989, Torwico filed for Chapter 11 bankruptcy and scheduled the New Jersey environmental agency as a disputed, unliquidated creditor; the bankruptcy court set a January 1990 bar date for proofs of claim.
- In November 1989, the State inspected Torwico’s former site and found a concealed illegal seepage pit containing hazardous waste allegedly migrating into local waters; it also found regulatory noncompliance at Torwico’s new site.
- After issuing notices of violation, the State issued an April 1990 administrative order directing Torwico to investigate and remediate the contamination and warning that noncompliance could lead to monetary penalties.
- The State did not itself perform the cleanup or seek reimbursement for cleanup costs.
- Torwico argued the remediation duties were “claims” under 11 U.S.C. § 101(5) and were discharged because the State did not timely file a proof of claim; the State asserted it was enforcing ongoing regulatory obligations.

## Issues

1. Whether an administrative order compelling investigation and cleanup of ongoing hazardous-waste contamination constitutes a dischargeable “claim” under 11 U.S.C. § 101(5) when the government seeks performance rather than payment.
2. Whether the possibility of civil penalties for noncompliance converts a cleanup order into a dischargeable monetary claim.

## Decision

- The Third Circuit affirmed the district court and held the cleanup order was not a dischargeable “claim.”
- The State was enforcing its police and regulatory power to abate an ongoing environmental hazard, not seeking a right to payment from the bankruptcy estate.
- Because the State neither performed the remediation nor held an alternative right to payment in lieu of performance, § 101(5) did not apply.
- The potential for monetary penalties operated as coercive sanctions to compel compliance and did not transform the performance obligation into a dischargeable claim.

## Legal Principles

- A bankruptcy “claim” under 11 U.S.C. § 101(5) requires (a) a right to payment, or (b) a right to an equitable remedy for breach that gives rise to a right to payment.
- A governmental order requiring a debtor to remediate ongoing pollution is generally a continuing regulatory obligation when the government seeks compliance and lacks an alternative right to monetary payment.
- The fact that compliance will require the debtor to spend money does not, by itself, create a governmental “right to payment.”
- Environmental obligations aimed at stopping or correcting ongoing contamination may survive discharge as continuing duties under state law; they are distinct from obligations reduced to a money demand against the estate.
- Coercive civil penalties designed to enforce performance do not convert the underlying cleanup duty into a dischargeable prepetition debt.

## Conclusion

The court held that an environmental agency’s order compelling a Chapter 11 debtor to investigate and remediate ongoing hazardous-waste contamination is not discharged when the agency seeks performance to abate a current hazard and does not possess an alternative right to payment.


Torwico Elecs., Inc. v. N.J. Dep’t of Env’t Prot., 8 F.3d 146 (3d Cir. 1993)