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Volume 21, Issue 8 — August 1991


The Law of Environmental Lender Liability

by Joel R. Burcat, Ronald W. Chadwell, David R. O'Connell, and Linda J. Shorey

Editors' Summary: The principle of environmental lender liability holds that in certain instances a creditor may be found liable for damages to the environment caused by his debtor. Despite the simplicity of this definition, the application of this principle has proven to be very complex. Courts that have addressed environmental lender liability issues have not agreed on what a creditor must do to become liable. In CERCLA litigation, environmental lender liability has had a major impact on the lending industry, making it virtually impossible in many industries to obtain a loan without paying for an environmental audit and agreeing to numerous conditions. The authors survey the current state of the law of environmental lender liability and examines legislative and regulatory proposals addressing this form of liability. The authors also examine common-law lender liability and concludes that, in order to make some sense of environmental lender liability, courts, litigants, and commentators should approach environmental lender liability cases from the perspective of common-law lender liability.


B.F. Goodrich v. Murtha and EPA's Municipal Settlement Policy: Municipalities Are Not Exempt From CERCLA Liability

by Sarah Robichaud

Editors' Summary: This Comment examines the district court's decision in B.F. Goodrich Co. v. Murtha that municipal solid waste (MSW) is not exempt from CERCLA for purposes of apportioning cleanup costs, and that EPA's Municipal Settlement Policy does not insulate municipalities from CERCLA liability at the expense of private waste generators. The Comment concludes that the court's decision is consistent with CERCLA's goal of cleaning up hazardous waste sites and apportioning damages regardless of the source of the waste, and with the language of the Municipal Settlement Policy. The Policy was adopted to assist EPA regions in deciding whether to expend their limited resources on pursuing municipal PRPs for MSW cleanup costs, and by its own terms, does not provide an exemption for potential liability under CERCLA §107 for any party.

The U.S. Court of Appeals for the Second Circuit has granted the municipalities' request for interlocutory appeal in
Murtha, and its ruling will be the first appellate decision in an emerging line of cases on the highly contentious issue of whether disposing of MSW gives rise to CERCLA liability. At the same time, local governments have organized a lobbying effort to revise CERCLA so that the unique characteristics of MSW are recognized and treated in an equitable fashion. The outcome in Murtha will strongly influence the degree to which municipalities should be prepared to negotiate with other PRPs to reach settlements in CERCLA contribution actions. Municipalities facing potential CERCLA liability have a strong incentive to avoid the high costs associated with CERCLA liability by eliminating hazardous waste from municipal waste streams, changing waste collection and disposal operations, and examining waste reduction or recycling alternatives. Sound local waste management practices could be a persuasive defense for municipalities caught in CERCLA cost recovery actions and could help guard against current litigation strategies that are on the verge of stretching CERCLA's liability provisions to an extreme by naming hundreds of municipalities, small businesses, and school districts as PRPs. The issue of liability for MSW at CERCLA hazardous waste sites is a significant factor in the long-term controversy over cleanup delays, litigation costs, and an unfair process that remains unresolved as CERCLA enters its second decade.


Household Garbage as a Hazardous Substance: What's a Mayor to Do?

by Mark J. Zimmerman

Industry has won the first round in the ongoing skirmish to determine whether local governments and municipalities are subject to the strict, joint, and several liability scheme of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)1 for the disposal of household garbage, or municipal solid waste (MSW), at municipal landfill sites across the country. In the first decisions to address the issue, U.S. District Courts in Connecticut and California have ruled that MSW is not automatically exempt from coverage as a "hazardous substance" under §101(14) of CERCLA.2