EXIDE VERNON: Exide, South Coast Air Quality Management District duel over $100 million lawsuit, Chapter 11 bankruptcy shield

By Jeff Montgomery

Law360, Wilmington (February 2, 2016, 7:09 PM ET) — Battery recycler Exide Technologies Inc. and California air regulators agreed Tuesday to seek a mediator for a dispute over state rights to court action on as much as $100 million in environmental claims that Exide considers barred by its Delaware bankruptcy case.
The mediation plan, supported by Judge Kevin J. Carey, would give the sides up to several weeks to seek settlement on California’s attempt to resume pursuit of claims related to toxic emissions and permit violations at the company’s now-shuttered Vernon plant near Los Angeles.

California agreed in July to delay action on the state civil suit, which targets Exide’s emissions and regulatory offenses before and after its filing for Chapter 11 in June 2013. The Chapter 11 plan, confirmed in March 2015, produced a $600 million cut in the company’s $1.4 billion debt.

Despite the bankruptcy confirmation, however, public controversy has continued over Exide’s decades-long releases of toxic lead on and around the Vernon plant, idled in 2014 and shuttered in 2015 under a federal consent order. The order included a $50 million plant cleanup fund, with $9 million reserved to remove lead from thousands of homes around the facility.

“I want you to know I have a pretty good understanding, after the things I’ve heard during this case, of how important this matter is to local citizens and local regulatory authorities,” Judge Carey told South Coast Air Quality Management District General Counsel Kurt R. Weise. “I have not lost sight of that, and I will not lose sight of that.”

But Carey also said that his responsibilities often focus closely on bankruptcy law requirements, and noted that the “intersection” of bankruptcy and environmental law is sometimes better described as a collision.

In December, California filed briefs seeking to resume its civil action for regulatory offenses, drawing objections from Exide. The company said California had not proven damages warranting compensation under bankruptcy law, and said that the state lodged ineligible new claims after the effective date of Exide’s plan.

Exide attorney Anthony W. Clark of Skadden Arps Slate Meagher & Flom LLP said California’s moves involve issues of bankruptcy law that should be resolved before the state’s case resumes.

“They agreed with that stay, your honor, ordered that stay and, your honor, ought to keep that stay in place,” Clark said.

Clark added that the court should require a resolution of bankruptcy law disputes before California gets a go-ahead, for the sake of judicial economy. Millions in legal expenses could pile up, he said, only to have state penalties become general, unsecured claims with little chance of recovery from the bankruptcy estate.

California AQMD attorney Thomas E. Patterson of Klee Tuchin Bogdanoff & Stern LLP said the agency prefers a mediator knowledgeable in California regulatory matters as well as bankruptcy law. He also said that the agency was prepared to devote resources to use of a private mediator, rather than a bankruptcy judge.

Judge Carey said he supported the idea, but told Patterson that AQMD’s requests would be viewed through a lens of judicial economy.

“I appreciate that, your honor,” Patterson said. “We certainly don’t want to open up a new ring in the circus.”

In a recent court filing, AQMD and Patterson’s firm said there was no basis to stay the California court action and said that the state would move ahead, at a minimum, with prosecution for prepetition claims.

“Exide and the district continue to disagree as to certain bankruptcy-specific legal issues — all of which are now fully briefed and before this court — but there can be no serious claim that the district is the ‘rogue regulator’” depicted by Exide, a recent California brief filed with the court said.

Judge Carey said he was not inclined to schedule arguments on the issue before California AQMD and Exide have at least an initial session with a mediator.

Exide is represented by Anthony W. Clark, Dain A. De Souza, 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 bankruptcy case is Exide Technologies, case number 1:13-bk-11482, in the U.S. Bankruptcy Court for the District of Delaware.

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.

–Editing by Philip Shea.

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