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Z&Z Leasing, Inc. v. Graying Reel, Inc.

ELR Citation: 25 ELR 20802
Nos. No. 94-CV-73636-DT, 873 F. Supp. 51/40 ERC 1220/(E.D. Mich., 01/13/1995)

The court holds that a bank holding a first mortgage on contaminated property is not liable under §107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as an owner or operator for expenses the current owner incurred cleaning up contamination that prior owners allegedly caused. The court first holds that the bank is not liable under CERCLA as an owner. CERCLA's secured lender exception explicitly excludes from liability persons who, without participating in the management of a vessel or facility, hold indicia of ownership primarily to protect securing interests in the vessel or property. The bank's rights under a 1985 security agreement, a 1991 civil action the bank filed, and a subsequent 1991 settlement agreement do not constitute indicia of ownership sufficient to impose liability. The 1991 settlement agreement only provided the bank immediate possession of personal property not sold by the current owner, unless the owner's indebtedness was reduced by the sale of some of its collateral to a set amount. Also under that agreement, a consent judgment, whereby the current owner would relinquish any right or title to the property, would enter if all the collateral were sold. Because the current owner sold its property to reduce its indebtedness to the stated amount, however, the consent judgment never entered and the bank never took action to foreclose on the mortgage. The court next holds that the bank is not liable as an operator even though it received negative covenants from the current owner requiring the prior owner to obtain the bank's consent to the purchase, sale, or encumbrance of the current owner's assets. Secured lenders frequently have some routine involvement in the financial affairs of their debtors in order to protect their interests adequately. To impose liability for including these negative covenants would be to punish the bank for engaging in its normal course of business. The court also holds that the bank is not an operator even though it requested an investigation of possible contamination of the property and insisted that the current owner comply with applicable environmental laws. Such requests do not constitute operation of the property.

Counsel for Plaintiff
Michael G. Jaron
28150 Westbrooke Ave., Farmington Hills MI 48334
(810) 626-1348

Counsel for Defendants
Christopher J. Valeriote
Kitch, Drutchas, Wagner & Kenney
One Woodward, 10th Fl., Detroit MI 48226
(313) 965-7900