EXIDE VERNON UPDATE: South Coast Air Quality Management District defends efforts to assess an additional $80 million in environmental penalties against Exide

By Ben Conarck

Law360, New York (June 18, 2015, 6:01 PM ET) — A California air pollution regulator backed its push to hit Exide Technologies Inc. with environmental penalties totaling up to $80 million in Delaware bankruptcy court on Thursday, dismissing the battery maker’s argument that the claims are untimely “procedural gamesmanship of the worst sort.”
The automotive and industrial battery maker argued earlier this month that the South Coast Air Quality Management District’s new claims, part of the regulator’s state court suit, were filed after a December 2013 deadline to file proofs of claim. The regulator in turn shot back, saying that Exide had twisted the wording of a stipulation by interpreting it to apply only its original complaint, rather than the lawsuit itself.

“Exide’s construction of the March 2014 stipulation is directly contrary to how both Exide and the district understood the stipulation when they negotiated it, agreed to it and proceeded in accordance with it,” the regulator said in its objection.

The South Coast Air Quality Management District, which has been prosecuting the California state action since January 2014, said that it plans to continue to prosecute the enforcement action with the understanding that it must return to the bankruptcy court if it prevails. At that point, the Delaware court would “resolve any questions of allowability, priority, timeliness, dischargeability and the like.”

“Perhaps this court will never have to resolve any questions … but if ever it must, there will be enough time to do so when the California State Court has finished its work and the matter is before this court in the appropriate procedural posture,” the regulator said.

For its part, Exide said that the regulator has lodged new claims that don’t relate back to the original, circumventing the deadline for filing proofs of claims. It asked the bankruptcy court to enforce the injunction provision in the plan against the new claims and to sanction the district and require it to pay Exide’s costs and expenses in defending itself against those claims.

The South Coast Air Quality Management District said Exide never said that its state action would not proceed post-confirmation, and that such a statement would be inconsistent with its disclosure statement.

“Exide now says that Paragraph 31 of the confirmation order, which on its face operates to preserve the district’s right to proceed freely, instead operates to limit the district’s rights,” the regulator said.

Further, it was Exide’s initial correspondence with the regulator, it said, that drew the distinction between its initial pleading and the lawsuit itself. The battery maker then offered to enter into the stipulation permitting the litigation to proceed, the regulator said.

“To the extent there was any doubt about the importance and consequence of this distinction, it cannot have persisted once district marked up Exide’s draft to conform to Exide’s original offer,” the regulator said.

Specifically, the South Coast Air Quality Management District claims Exide committed numerous violations of the state’s Health and Safety Code at its Vernon, California-based lead-acid battery recycling facility and failed to timely take action to tackle issues with its air pollution control systems.

Trouble with the Vernon plant was one of the key factors that drove Exide to bankruptcy in June, after the facility was temporarily shut down in April by state regulators, costing the battery maker millions of dollars in projected earnings, the company said in its bankruptcy filing.

Exide is represented by Anthony W. Clark, Dain A. De Souza, Kenneth S. Ziman, J. Eric Ivester, Albert L. Hogan III and James J. Mazza Jr. of Skadden Arps Slate Meagher & Flom LLP.

The South Coast Air Quality Management District is represented by “J” Jackson Shrum of Webb & Sullivan and Thomas E. Patterson and Robert J. Pfister of Klee Tuchin Bogdanoff & Stern LLP.

The state court suit is People of the State of California ex rel. South Coast Air Quality Management District, a Public Entity v. Exide Technologies Inc., case number BC533528, in the Superior Court of the State of California, County of Los Angeles.

The bankruptcy case is Exide Technologies, case number 1:13-bk-11482, in the U.S. Bankruptcy Court for the District of Delaware.

–Additional reporting by Caroline Simson. Editing by Philip Shea.