The Fifth Circuit Court of Appeals has affirmed decisions of the bankruptcy court and a federal district court that the purchaser of a bankrupt company’s assets cannot recover the costs of environmental remediation from an escrow account established as part of the purchase agreement. In re Evans Indus. Inc., No. 10-30387 (5th Cir. 6/21/11) (unpublished).

After the company reorganized in 2006, it sold Greif Industrial Packaging its steel-drum and industrial-container operations at five leased facilities in Louisiana and Texas. The asset purchase agreement (APA) required Greif to place more than $1.6 million in a hold-back escrow account from which it could make claims. Greif allegedly spent nearly $650,000 to remove and dispose of hundreds of barrels of hazardous waste left at the facilities and filed a claim for that amount against the escrow account.

The bankruptcy trustee denied the claim and filed a complaint in bankruptcy court seeking an order to transfer the claimed funds to the trust. The bankruptcy court and then the district court ruled in the trustee’s favor, and Greif appealed, arguing that the company breached its environmental warranty in the purchase agreement and therefore retained responsibility for environmental remediation costs at the facilities.

Reviewing the APA, the appeals court determined that it does not state that Greif could engage in environmental remediation on its own initiative and then recover the costs from the escrow account. The court therefore found that neither the bankruptcy court nor the district court committed reversible error.