Torwico Electronics, Inc. v. State of New Jersey Department of Environmental Protection

In September 1985, Torwico Electronics, Inc. (Torwico) (debtor) relocated from its Ocean County, New Jersey, site to another property but continued to retain access to the Ocean County property. Torwico filed for Chapter 11 bankruptcy on August 4, 1989, having included as a creditor on its schedules the New Jersey Department of Environmental Protection and Energy (NJDEPE) (creditor). The bankruptcy court provided notice to NJDEPE of Torwico’s Chapter 11 filing on October 4, 1989, and informed NJDEPE that January 2, 1990, would constitute the deadline for filing a proof of claim. NJDEPE inspected the Ocean County property and discovered hazardous waste on November 13, 1989. NJDEPE thereafter provided notice to Torwico but failed to file a proof of claim by January 2, 1990. NJDEPE issued an administrative order dated April 9, 1990, to Torwico mandating Torwico’s mitigation of the pollution issue and stating that noncompliance would result in a monetary penalty. The order did not otherwise mandate payment. Torwico claimed that this order constituted a claim under 11 U.S.C. § 101(5), which defines a claim as a right to payment or to an equitable remedy for a breach of performance if the breach gives a right to payment. Torwico maintained that NJDEPE’s claim was disallowed based on the latter’s failure to file a proof of claim. NJDEPE averred that it sought neither payment nor an equitable remedy for a breach giving a right to payment, instead enforcing its police power. The bankruptcy court decided in favor of Torwico, and the district court reversed. Torwico appealed. As of the time that the circuit court heard this appeal, the hazardous-waste issue had not abated, and NJDEPE had itself taken no remedial cleanup action.