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State of N.J., Dept. of Environmental Protection and Energy v. Heldor Industries

filed: April 2, 1993; As Amended April 19, 1993.

STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION AND ENERGY, APPELLANT
v.
HELDOR INDUSTRIES, INC. APPELLEE



Appeal from the United States District Court for the District of New Jersey. D.C. Civ. No. 91-5701.

Before: Mansmann and Nygaard, Circuit Judges, and Dalzell, District Judge.*fn*

Author: Dalzell

Opinion OF THE COURT

DALZELL, District Judge

This appeal involves the question of whether a bankruptcy court Judge may, consistent with Article III of the United States Constitution, opine and rule upon an objection that was known to him to have been withdrawn prior to the issuance of his opinion and order. Because we hold that the bankruptcy Judge was constitutionally disabled from taking such action under such circumstances, we will vacate his advisory opinion and order.

I.

Heldor Industries, Inc. (the "Debtor"), a manufacturer and seller of prefabricated swimming pool packages and related products, on December 7, 1990 filed a petition for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., and thereafter remained in possession. The Debtor's headquarters and manufacturing operations were conducted on real property leased in two New Jersey locations.

After attempting to sell its business, the Debtor concluded an agreement to sell substantially all of its assets to HI Acquisition Corp. ("HI"). The New Bank of New England, N.A. (the "Bank"), the principal secured creditor, objected, and further negotiations between the Debtor and HI occurred. The Bank ultimately supported a new sale agreement among the Debtor, HI and HI's parent, Aqua Fab Industries, Inc. Unlike the original sale agreement, the amended document did not contain terms requiring the Debtor to comply with New Jersey's Environmental Clean-Up Responsibility Act, N.J.S.A. 13:1K-6 et seq. ("ECRA"). The Bank consented to the new sale agreement, which proffered it for the approval of the bankruptcy court.

Hearings took place on the amended sale agreement on March 25, 26 and 27, 1991, at which the Official Unsecured Creditors Committee pressed its objection. After further negotiations, the Committee's objection was settled and the proposed sale received bankruptcy court approval on March 27, 1991. Although the New Jersey Department of Environmental Protection (the "DEP") received notice concerning the proposed sale, it did not object to it.

On April 23, Heldor applied to the bankruptcy court for approval of the settlement agreement concerning the sale and the resolution of the Committee's objection. The DEP and another creditor objected, and hearings were held on May 20 and July 9, 1991. The bankruptcy court overruled the other creditor's objection on July 9, but the DEP pressed its objection because the DEP contended that the settlement agreement was not in compliance with ECRA since no funds were set aside from the sale proceeds for ECRA compliance. The bankruptcy Judge reserved his decision after the July 9 hearing on DEP's objection, and stated he would issue an opinion within "a couple of months."

By an August 9, 1991 letter, the DEP advised the bankruptcy Judge that "the State wishes at this time to withdraw its objection, filed on May 8, 1991, to the Settlement Agreement in the above captioned matter." The letter then explained the reasons for this withdrawal, and concluded that "the object of ECRA having been achieved the State will not hold up the distribution of proceeds any longer and formally withdraws its objections effective immediately." On August 15, 1991, counsel for the Debtor, Karen A. Giannelli, Esquire, transmitted to the bankruptcy Judge a proposed form of order approving the settlement agreement. In the first paragraph of her letter, Ms. Giannelli noted, "The State has since withdrawn its objection by letter dated August 9, 1991."

According to the transcript of the telephonic conference among counsel for the Debtor, DEP, other creditors and the bankruptcy Judge held on September 27, 1991, the bankruptcy Judge was on vacation at the time the DEP's letter was received. On the other hand, the bankruptcy Judge stated (70a):

However, I did see Ms. Giannelli's letter, I forget what the date was -- I think it was dated August 16th or something, which referred to the withdrawal of the DEP's objection. That was the first notice that I had that the DEP had withdrawn it's [sic ] objection. However, I did not see Ms. Giannelli's letter until something like August 27th or 28th when I came back from vacation. I did not see that because vacation intervened.

Although he was aware by no later than August 28, 1991, that the DEP's objection had been withdrawn, on September 6, 1991, the bankruptcy Judge issued his Memorandum Opinion, In Re Heldor Industries, Inc., 131 B. R. 578 (Bankr. D.N.J. 1991), which "addresses an objection by the New Jersey Department of Environmental Protection ... to a proposed settlement involving distribution of the proceeds of a sale of substantially all of the Debtor's assets", id. at 580, and concluded, at ...


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