Bergsoe Metal Corp., In re, 93-0174023
| Decision Date | 09 August 1990 |
| Docket Number | No. 89-35397,D,No. 93-0174023,93-0174023,89-35397 |
| Citation | 910 F.2d 668 |
| Parties | , 59 USLW 2145, 20 Envtl. L. Rep. 21,229 In re BERGSOE METAL CORPORATION, a Delaware corporation, SSN I.D.ebtor, David A. HILL, trustee for Bergsoe Metal Corporation and; United States National Bank of Oregon, a national banking association, Plaintiffs, v. The EAST ASIATIC COMPANY, LTD.; The East Asiatic Company, Inc.; Heidelberg Eastern, Inc., Defendants-Counterclaimants/Appellants, v. PORT OF ST. HELENS, Counterdefendant/Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Elizabeth A. Conklyn, Bogle & Gates, Seattle, Wash., for defendants-counterclaimants/appellants.
Jeffrey M. Batchelor, Spears, Lubersky, Bledsoe, Anderson, Young & Hilliard, Portland, Or., for counterdefendant/appellee.
Appeal from the United States District Court for the District of Oregon.
Before BROWNING, ALARCON and KOZINSKI, Circuit Judges.
The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Secs. 9601 et seq. (CERCLA), provides that the "owner" of a contaminated facility is liable for the costs of cleanup. It is left for the courts, however, to clean up the mess left behind by complicated financial transactions. We search for the CERCLA owner.
Bergsoe Metals is a Delaware corporation formed in 1978 for the purpose of conducting a lead recycling operation. The East Asiatic Company, Ltd., The East Asiatic Company, Inc. and Heidelberg Eastern, Inc. (collectively, EAC) are owners of Bergsoe's stock. The Port of St. Helens is a municipal corporation organized under the laws of Oregon and empowered to issue revenue bonds to promote industrial development in the St. Helens, Oregon area.
Sometime in 1978, representatives of Bergsoe contacted the Port to discuss the building of a lead recycling facility in St. Helens. These discussions resulted in a Memorandum of Agreement signed December 13, 1978. The Port therein agreed to issue industrial development revenue bonds and pollution control revenue bonds to provide funds for the acquisition of land and the construction of a secondary lead recycling plant and related pollution control equipment in St. Helens.
On December 28, 1979, the Port sold Bergsoe 50 acres of land on which to construct the plant. In exchange, Bergsoe gave the Port a promissory note for $400,000 and a mortgage on the property.
Through a series of interlocking transactions that closed on June 5, 1981, Bergsoe, the Port and the United States National Bank of Oregon completed the financing for the recycling operation. At the heart of this financing were the revenue bonds, issued by the Port. The Bank held the bonds in trust for the bondholders. The revenue from the bond sales went to Bergsoe, which was obligated to pay the money owed on the bonds to the Bank.
The first transaction was a sale-and-lease-back arrangement between Bergsoe and the Port. Bergsoe conveyed to the Port by warranty deed the 50 acres and the recycling plant to be built there. The Port and Bergsoe then entered into two leases to cover the property and the plant. Bergsoe agreed to construct the plant and to pay rent on the leases directly to the Bank. That rent was equal to the principal and interest to come due on the bonds. The leases gave Bergsoe the option of purchasing the entire facility for $100 once the bonds had been paid in full.
The second transaction involved two mortgage and indentures of trust between the Port and the Bank, corresponding to the two leases. The Port agreed to issue its revenue bonds, and mortgaged to the Bank, as trustee for the bondholders, the property and recycling plant. The Port also assigned to the Bank all its rights under, and revenues to be generated from, the leases. The Bank agreed to hold the amounts generated from sale of the bonds in a construction fund to be paid to Bergsoe. The indentures obligated the Bank to collect rent under the leases and to apply them in retirement of the bonds.
In addition to acting as trustee, the Bank purchased the bonds. In partial consideration for this purchase, the Port signed a subordination agreement whereby the Port subordinated all its rights under the prior $400,000 obligation to the Bank's rights under the leases.
The Port also placed in escrow with the Bank the warranty deeds, bills of sale and UCC release statements, with instructions to deliver the documents to Bergsoe when the company exercised its option to purchase the facility.
The Bergsoe recycling plant began operation in the spring of 1982 and soon experienced financial difficulties. In September 1983, the Bank declared Bergsoe in default on the leases. Subsequently, the Bank and Bergsoe agreed upon a workout arrangement, whereby Front Street Management Corporation would manage the recycling facility. In exchange, the Bank and the Port would agree not to foreclose under the leases or bond indentures. On June 30, 1984, the Bank, Bergsoe, Front Street and the Port executed various workout documents.
The plant did no better under Front Street's management than it had under Bergsoe's, and the plant shut down in 1986. On October 21 of that year, the Bank put Bergsoe into involuntary bankruptcy under Chapter 11 of the Bankruptcy Code. By that time, the Oregon Department of Environmental Quality had determined that various hazardous substances had contaminated the plant site. In September 1987, the Bank and the trustee in bankruptcy filed suit against EAC, the companies who own Bergsoe, to collect on Bergsoe's debts. The plaintiffs subsequently amended their complaint to request a declaration that EAC is liable for the costs of cleaning up the environmental contamination.
The defendants filed a counterclaim, including a third party complaint against the Port, alleging that the Bank and the Port are liable for the costs of cleanup under CERCLA. The Port moved for summary judgment, alleging that it does not own the recycling plant for CERCLA purposes, and therefore has no CERCLA liability. The bankruptcy court granted the motion, which the district court affirmed. EAC appeals the grant of summary judgment in favor of the Port.
CERCLA holds the "owner" of a facility liable for the costs of cleaning up hazardous substances released at the facility. 42 U.S.C. Secs. 9607(a)(1) & (2). 1 The CERCLA definition of "owner" is not, however, coextensive with all possible uses of that term; it specifically excludes "a person, who, without participating in the management of a vessel or facility, holds indicia of ownership primarily to protect his security interest in the vessel or facility." 42 U.S.C. Sec. 9601(20)(A). CERCLA thus protects secured creditors who do not participate in management of the facility. See United States v. Fleet Factors Corp., 901 F.2d 1550, 1554 (11th Cir.1990).
There is no question that, in at least one sense, the Port owns the Bergsoe recycling plant: the deed to the property is in the name of the Port. The Port nonetheless maintains that it is not a CERCLA owner because it falls within the security interest exception.
In order for the Port to win on summary judgment, the undisputed facts must demonstrate both that the Port holds indicia of ownership primarily to protect its security interest in the Bergsoe plant and that it did not participate in the management of the plant. If, after viewing the evidence most favorably to EAC, there is a material issue as to either of these points, summary judgment is inappropriate. See Karamanos v. Egger, 882 F.2d 447, 449 (9th Cir.1989).
That the Port holds paper title to the Bergsoe plant does not, alone, make it an owner of the facility for purposes of CERCLA; under the security interest exception the court must determine why the Port holds such indicia of ownership. Here, there is no doubt that the Port has the deed in the plant primarily to ensure that Bergsoe would meet its obligations under the leases and therefore under the bonds. In other words, the Port has a security interest in the property.
The Port is in somewhat of a different position than the ordinary secured creditor, who holds indicia of ownership to ensure that it will be paid what it is owed. Here, the Port held title to the property not to ensure that it would receive payment, but to guarantee that Bergsoe would cover the Port's own indebtedness under the bonds. This does not change the analysis. Indeed, it demonstrates just how divorced from the Bergsoe operation the Port was. Essentially, the Bank financed the Bergsoe plant; the Port's only involvement was to give its approval to the project and to issue the bonds that served as the vehicle for the financing. The Port received the warranty deeds as part of a transaction whose sole purpose was to provide financing for the plant.
The relevant evidence that the Port's ownership was merely part of the financing arrangement is to be found in the...
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