In re La Paloma Generating Co.

The federal district court for the District of Delaware dismissed the California Air Resource Board’s appeal of a bankruptcy court ruling that held that the purchaser of a natural gas power plant owned by a company that had emerged from bankruptcy did not have successor liability for the debtor company’s pre-transfer compliance obligations under California’s cap-and-trade program. The district court concluded that the Bankruptcy Code’s “statutory mootness” provision (11 U.S.C. § 363) compelled the conclusion that the appeal was moot because reversal or modification of the bankruptcy court’s authorization of the power plant sale without the encumbrance of the compliance obligations (which amounted to approximately $63 million) would affect the validity of the facility’s sale.

The federal bankruptcy court for the District of Delaware ruled that the purchaser of a natural gas power plant in California from a company that had emerged from bankruptcy did not have successor liability for the debtor company’s pre-transfer compliance obligations under California’s cap-and-trade program. Triennial compliance obligations arising from emissions from 2015 to 2017 come due on November 1, 2018; the cost of complying with the debtors’ compliance obligations was estimated to be approximately $63 million. The bankruptcy court said the cap-and-trade regulations covered only entities, not facilities themselves, and that a purchaser would only be covered after purchasing and operating a facility. The court also concluded that the regulations did not provide for successor liability or otherwise make purchasers liable for the emissions of an entity formerly covered by the regulations. In addition, the court rejected the California Air Resources Board’s argument that the compliance obligations were not an “interest” under the Bankruptcy Code that could escape successor liability.