ELR Citation: ELR 21229
No(s). 89-35397 (9th Cir. Aug 9, 1990)

The court holds that a municipal corporation that issued revenue bonds for a private corporation's acquisition of land and for the construction of a lead recycling plant, and holds indicia of ownership primarily to protect its security interest, is not liable for cleanup costs at the plant as an "owner" under §107 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). After issuing revenue bonds to provide funding for the land acquisition, the municipal corporation sold the land to the private corporation, taking back that corporation's promissory note and mortgage. Subsequently, the private corporation conveyed the land and plant back to the municipal corporation, which then leased the land and plant back to the private corporation. Concurrently, the municipal corporation mortgaged the land and plant to a bank as trustee for the bondholders, the bank to hold the amounts generated from bond sales and rents collected under the leases and apply them in retirement of the bonds. Experiencing financial difficulties, the private corporation defaulted on the leases, entered a workout arrangement with the municipal corporation and the bank, and ultimately was forced into involuntary Chapter 11 bankruptcy by the bank. When the bank and trustee in bankruptcy subsequently sued the owners of the private corporation for its debts and the costs of cleaning up environmental contamination at the plant site, defendant owners of the private corporation counterclaimed against the municipal corporation and the bank, alleging they were liable for cleanup costs under CERCLA. After the bankruptcy court granted the municipal corporation and bank's motion for summary judgment, defendants appealed.

The court holds that the fact that the municipal corporation holds paper title to the plant does not, alone, make it an owner of the facility for CERCLA purposes. The evidence establishes that the municipal corporation holds the deed to the plant as a security interest primarily to ensure that defendant private corporation would meet its obligations under the leases and therefore under the bonds. Further, the municipal corporation holds title to guarantee that the private corporation would cover its indebtedness under the bonds. Moreover, the leases give the private corporation all other traditional indicia of ownership, such as responsibility for paying taxes, for purchasing insurance, and for bearing the risk from destruction or damage to the property. The terms of repayment under the leases also support a finding that ownership indicia attach to the private corporation, since rents paid under the leases were equal to the principal and interest due under the bonds, the money was paid directly to the bank, the leases did not expire on specific dates but only after the bonds were paid off, and after the bonds were paid off the private corporation could purchase the property for the nominal sum of $100. Finally, the court holds that the municipal corporation did not participate in the management of the plant. A creditor must exercise actual management authority before it can be held liable for action or inaction that results in the discharge of hazardous wastes. Merely having the power to get involved in management, but failing to exercise it, is not enough to confer CERCLA liability. In this case, the municipal corporation's input during the financial planning stages and its rights to inspection, reenter, and foreclose the property under the leases do not amount to management.

Counsel for Defendants/Counter-Claimants/Appellants
Elizabeth A. Conklyn
Bogle & Gates
Two Union Sq., 601 Union St., Seattle WA 98101-2322
(206) 682-5151

Counsel for Counter-Defendant/Appellee
Jeffrey M. Batchelor
Spears, Lubersky, Bledsoe, Anderson, Young & Hilliard
520 S.W. Yamhill St., Ste. 800, Portland OR 97204-1383
(503) 226-6151

Before Browning and Alarcon, JJ.