ELR Citation: ELR 21500
No(s). 93-1184 (4th Cir. Sep 17, 1993)

The court holds that a bank is not liable for contribution under §113(f)(1) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), despite having foreclosed on contaminated property and held title to it for over seven months before reselling it. The owner of property defaulted on its loan and the bank exercised its rights as beneficiary under a deed of trust and foreclosed on the property. The bank was the only bidder at the foreclosure sale and, as a result, purchased and took title to the property. Shortly thereafter, the bank sold the property to the first able buyer, after which it was discovered that the property was contaminated. The court holds that the bank is not liable for contribution under CERCLA §113(f)(1) because it meets both requirements of the security interest exemption of CERCLA §101(20)(A). The bank satisfied a §101(20)(A) requirement that the lender hold indicia of ownership primarily to protect its security interest. The bank took title at the foreclosure sale solely to protect its security interest. The record reveals no investment or profit motive for acquiring the property. The bank also satisfied the second requirement of §101(20)(A) by not participating in the management of the property and acting reasonably promptly to divest itself of ownership. Because the bank is not liable, the court does not address the applicability of the U.S. Environmental Protection Agency's lender liability rule. Finally, the court holds that §101(20)(A) does not require the bank to have acted with commercial reasonableness in reselling the property. CERCLA does not require commercial reasonableness before §101(20)(A) applies.

Counsel for Plaintiffs
Stephen R. Berlin
Petree & Stockton
1001 W. 4th St., Winston-Salem NC 27101
(919) 725-2351

Counsel for Defendants
Auley M. Crouch III
Carr, Swails, Huffine & Crouch
202 N. Third St., P.O. Box 4, Wilmington NC 28401
(919) 762-0595