ELR Citation: ELR 20557
No(s). -84-4026 (D. Md. Apr 9, 1986)

The court rules that §101(20)(A) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which excludes from the definition of "owner or operator" of a hazardous substance disposal facility one holding indicia of ownership primarily to protect a security interest, does not apply to a bank that held title to the facility for some time after a foreclosure sale, but that the affirmative third party defense in CERCLA §107(b)(3) may apply. The federal government cleaned up drums of toxic chemicals and contaminated soil found at a site in California, Maryland, and then sought to recover its costs from the bank. The court holds that defendant bank is an "owner" of the site. Current ownership of the property is sufficient to make one an owner under CERCLA §107(a), regardless of whether or not one operated the facility, the court rules. The court also rules that the §101(20)(A) exclusion for those holding ownership indicia to protect security interests does not apply. The exemption must be construed narrowly. By its language, it applies only to those who are secured creditors at the time of the facility cleanup that gives rise to a liability claim. Under Maryland law, the bank was technically the owner of the property when it held a mortgage to secure the loan it had given the site owner and operator. The legislative history of CERCLA indicates that it was this type of owner that the §101(20)(A) exclusion was intended to protect. To allow the bank, which turned its security interest into a full ownership interest that it has retained for four years, to escape liability would frustrate the policies of CERCLA by forcing the general public to pay for the cleanup and allowing the bank to profit from the resulting increase in the property's value. The bank could have protected itself from liability by more prudent selection of its loan recipients or by not foreclosing on the property. The court distinguishes a contrary decision, because the bank in that case held title a very short time after the foreclosure.

The court next holds that the government is not entitled to summary judgment on its claim that defendant may not avail itself of the §107(b)(3) affirmative defense of third party causation. The defense is not available where the third party was in a contractual relationship with the otherwise responsible party, or where the latter failed to use due care with regard to the hazardous substances. The court holds that the loan agreement between the bank and the facility operator does not, as a matter of law, satisfy the contractual relationship test. The evidence does not establish any undisputed contractual link between the bank and the disposal of hazardous substances in the facility, nor does it provide a conclusive picture of the degree of care exercised by the bank with regard to the hazardous substances.

Counsel for Plaintiff
F. Henry HabichtII, Ass't Attorney General
Land and Natural Resources Division
Department of Justice, Washington DC 20537
(202) 633-2701

Breckinridge L. Willcox, Glenda G. Gordon
Office of the U.S. Attorney
8th Fl., U.S. Cthse., 101 W. Lombard St., Baltimore MD 21201
(301) 539-2940

Counsel for Defendant
Walter W. Sawyer
Sawyer & Myerberg
309 Great Mills Rd., Lexington Park MD 20653
(301) 863-9434