Kelley v. E.P.A.

• Decision Date: 01 March 1994
• Docket Number: 92-1314,Nos. 92-1312,s. 92-1312
• Citation: 15 F.3d 1100
• Parties: , 304 U.S.App.D.C. 369, 62 USLW 2489, 24 Envtl. L. Rep. 20,511 Frank J. KELLEY, Attorney General of the State of Michigan, Frank J. Kelley, ex rel. State of Michigan, Michigan Department of Natural Resources, Frank J. Kelley, Petitioners, v. ENVIRONMENTAL PROTECTION AGENCY, William K. Reilly, Administrator, Respondents, American Bankers Association, Equipment Leasing Association of America, Commercial Finance Association, American Council of Life Insurance, American College of Real Estate Lawyers, Intervenors. CHEMICAL MANUFACTURERS ASSOCIATION, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent, American Bankers Association, Equipment Leasing Association of America, Commercial Finance Association, American Council of Life Insurance, American College of Real Estate Lawyers, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1100

15 F.3d 1100

38 ERC 1193, 304 U.S.App.D.C. 369, 62

USLW 2489,

24 Envtl. L. Rep. 20,511

Frank J. KELLEY, Attorney General of the State of Michigan,

Frank J. Kelley, ex rel. State of Michigan,

Michigan Department of Natural

Resources, Frank J. Kelley, Petitioners, v. ENVIRONMENTAL PROTECTION AGENCY, William K. Reilly, Administrator, Respondents,

American Bankers Association, Equipment Leasing Association

of America, Commercial Finance Association,

American Council of Life Insurance,

American College of Real

Estate Lawyers, Intervenors.

CHEMICAL MANUFACTURERS ASSOCIATION, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent,

American Bankers Association, Equipment Leasing Association

of America, Commercial Finance Association,

American Council of Life Insurance,

American College of Real

Estate Lawyers, Intervenors.

Nos. 92-1312, 92-1314.

United States Court of Appeals,

District of Columbia Circuit.

Argued Oct. 28, 1993.

Decided Feb. 4, 1994.

Dissenting Opinion of

Chief Judge Mikva March 1, 1994.

Petition for Review of Orders of the Environmental Protection Agency.

Jeremy M. Firestone, Asst. Atty. Gen., State of Mich., argued the cause, for petitioners Mich. Atty. Gen. Frank J. Kelley, the State of Mich. and the Mich. Dept. of Natural Resources in No. 92-1312. With him on the briefs was Thomas L. Casey, Sol. Gen., State of Mich.

Theodore L. Garrett argued the cause, for petitioner Chemical Mfrs. Ass'n in No. 92-1314. With him on the briefs were David F. Zoll and Dell E. Perelman.

Bradley M. Campbell, Atty., U.S. Dept. of Justice, argued the cause, for respondents. With him on the brief was Earl C. Salo, Counsel, U.S. E.P.A. Michael A. McCord, Atty., U.S. Dept. of Justice, entered an appearance, for respondents.

On the joint brief, for intervenors American Bankers Ass'n, et al., and amicus curiae Mortg. Bankers Ass'n of America were John J. Gill, Thomas J. Greco, Michael F. Crotty, Roger D. Schwenke, Margaret V. Hathaway, Howard L. Feinstein, Robert S. McConnaughey, Samuel I. Gutter, David T. Buente, Jr., Edwin E. Huddleson, III, and William E. Cumberland. Richard R. Goldberg entered an appearance, for intervenor American College of Real Estate Lawyers in Nos. 92-1312 and 92-1314.

Before MIKVA, Chief Judge, SILBERMAN and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

Dissenting opinion filed by Chief Judge MIKVA.

SILBERMAN, Circuit Judge:

Petitioners challenge an EPA regulation limiting lender liability under CERCLA. We hold that EPA lacks statutory authority to restrict by regulation private rights of action arising under the statute and therefore grant the petition for review.

I.

Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. Sec. 9601 et seq., in 1980 to "provide for liability, compensation, cleanup, and emergency response for hazardous substances released into the environment and the cleanup of inactive hazardous waste disposal sites." Pub.L. No. 96-510, 94 Stat. 2767 (1980). The statute provides several mechanisms to further these objectives. Section 105 requires the President to promulgate and publish a National Contingency Plan (NCP) to direct actions in response to a hazardous contamination and to prescribe the procedures for those actions. 42 U.S.C. Sec. 9605 (1988). The President in turn has delegated primary authority under section 105--and much of CERCLA--to EPA. See Exec. Order No. 12,580 Sec. 1(b)(1), reprinted in 42 U.S.C.A. Sec. 9615 note at 291-95 (1993 West Supp.). Under section 104, 42 U.S.C. Sec. 9604(a)(1), the President (again, EPA by delegation, see Exec. Order No. 12,580 Sec. 2(g)) may undertake direct remedial actions--either by employing agency personnel or through private contracting--to clean up a contaminated site and may fund the cost of such actions through the Hazardous Waste Superfund, 26 U.S.C. Sec. 9507 (1988). The government may then bring cost recovery actions under section 107 of CERCLA against responsible parties to replenish the funds expended. 42 U.S.C. Sec. 9607(a)(4)(A).

Alternatively, where "there may be an imminent and substantial endangerment to the public health or welfare or the environment," EPA may order parties to clean up the hazardous waste and remedy its effects. 42 U.S.C. Sec. 9606(a); Exec.Order No. 12,580 Sec. 4(d)(1). Those who receive and comply with such orders are entitled to reimbursement of their reasonable costs if they are not liable under section 107, 42 U.S.C. Sec. 9607(a), or--even if liable--if they establish on the administrative record that the cleanup action ordered was arbitrary and capricious or otherwise unlawful. 42 U.S.C. Sec. 9606(b)(2)(C)-(D). EPA also may assess civil penalties for noncompliance with certain CERCLA provisions and bring an action in federal district court to collect such penalties. 42 U.S.C. Sec. 9609; Exec.Order No. 12,580 Sec. 4(d)(2).

CERCLA also authorizes private parties and EPA to bring civil actions independently to recover their costs associated with the cleanup of hazardous wastes from those responsible for the contamination. 42 U.S.C. Sec. 9607(a). Section 107 of CERCLA generally imposes strict liability on, among others, all prior and present "owners and operators" of hazardous waste sites. Id. Sec. 9607(a)(1). Congress created a safe harbor provision for secured creditors, however, in the definition of "owner or operator," providing that "[s]uch term does not include 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).

Conflicting judicial interpretations as to the scope of this secured creditor exemption opened the possibility that lenders would be held liable for the cost of cleaning up contaminated property that they hold merely as collateral. Lenders lacked clear guidance as to the extent to which they could involve themselves in the affairs of a facility without incurring liability and also as to whether they would forfeit the exemption by exercising their right of foreclosure, which could be thought to convert their "indicia of ownership"--the security interest--into actual ownership. See United States v. Maryland Bank & Trust Co., 632 F.Supp. 573, 578-80 (D.Md.1986). In United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir.1990), cert. denied, 498 U.S. 1046, 111 S.Ct. 752, 112 L.Ed.2d 772 (1991), the court, although adhering to the settled view that Congress intended to protect the commercial practices of secured creditors "in their normal course of business," id. at 1556, nevertheless stated that "a secured creditor will be liable if its involvement with the management of the facility is sufficiently broad to support the inference that it could affect hazardous waste disposal decisions if it so chose." Id. at 1558 (emphasis added).

This language, portending as it did an expansion in the scope of secured creditor liability, caused considerable discomfort in financial circles. Intervenor American Bankers Association points to survey data indicating that lenders curtailed loans made to certain classes of borrowers or secured by some types of properties in order to avoid the virtually unlimited liability risk associated with collateral property that may be contaminated. Some lenders, we are told, even chose to abandon collateral properties rather than foreclosing on them for fear of post-foreclosure liability.

EPA, responding to the understandable clamor from the banking community and in light of the federal government's increasing role as a secured creditor after taking over failed savings and loans, ¹ instituted a rulemaking proceeding, 56 Fed.Reg. 28,798 (1991), to define the secured creditor exemption when legislative efforts to amend CERCLA failed. See, e.g., H.R. 4494, 101st Cong., 2d Sess. (1990), 136 Cong.Rec. H1505 (daily ed. Apr. 4, 1990). In April 1992, EPA issued the final regulation, which employs a framework of specific tests to provide clearer articulation of a lender's scope of liability under CERCLA. The rule provides an overall standard for judging when a lender's "[p]articipation in [m]anagement" causes the lender to forfeit its exemption. 40 C.F.R. Sec. 300.1100(c)(1) (1992). A lender may, without incurring liability, undertake investigatory actions before the creation of a security interest, monitor or inspect the facility, and require that the borrower comply with all environmental standards. 40 C.F.R. Sec. 300.1100(c)(2). When a loan nears default, the rule permits the lender to engage in work-out negotiations and activities, including ensuring that the collateral facility does not violate environmental laws. 40 C.F.R. Sec. 300.1100(c)(2)(ii)(B). The rule also protects a secured creditor that acquires full title to the collateral property through foreclosure, as long as the creditor did not participate in the facility's management prior to foreclosure and undertakes certain diligent efforts to divest itself of the property. 40 C.F.R. Sec. 300.1100(d). Lenders still face liability under section 107(a)(3) and (4)--as opposed to liability as an "owner and operator" under section 107(a)(1) and (2)--if they arrange for the disposal of hazardous substances at a facility or accept hazardous waste for transportation and disposal. 40 C.F.R. Sec. 300.1100(d)(3).

In response to comments questioning whether the rule would apply in actions where the United States was not a party, EPA stated that the regulation is "a 'legislative' or 'substantive' rule that has undergone notice-and-comment pursuant to the Administrative Procedure Act" and as such "defines the liability of holders [of security interests] for CERCLA response costs in both the United States' and private party litigation." 57 Fed.Reg. 18,344, 18,368 (1992). The agency alternatively asserted that even if the rule were read as "a 'mere' ...