CERCLA's New Safe Harbors for Banks, Lenders, and Fiduciaries

William W. Buzbee

Buried deep within the several thousand page Omnibus Consolidated Appropriations Act¹ signed by President Clinton in the waning days of the 104th Congress are the first significant amendments in a decade to the much-debated Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).² CERCLA is the federal law that creates a broad class of parties potentially liable for expenses incurred in cleaning up sites contaminated with hazardous substances. CERCLA also gives the federal government broad authority to undertake, or force liable parties to undertake, cleanups of contaminated sites.

The new amendments to CERCLA, enacted as Subtitle E of the Appropriations Act, are entitled "The Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996." These 1996 lender-liability amendments provide significant new protections from liabilities under CERCLA and portions of the Resource Conservation Recovery Act (RCRA)³ to banks, other lenders, a broad variety of fiduciaries, and involuntary governmental holders of contaminated property. The amendments were passed with little contemporaneous public debate or discussion and, in fact, were generated out of congressional banking committees, instead of the usual environment committees and subcommittees.⁴

This article briefly reviews the procedural history behind these amendments and then reviews their key provisions. It next discusses the likely impacts and implications of these statutory changes. While largely intended to give banks liability protections similar to those that the U.S. Environmental Protection Agency (EPA) attempted to create by regulation in 1992, these amendments are likely to change the role banks have played in policing and investigating contaminated sites, create additional incentives to structure economic investments in the form of debt instead of equity, at least marginally reduce incentives to avoid redevelopment of brownfields, and give EPA new arguments that it can modify by rulemaking the contours of classes of liable entities, known as potentially responsible parties (PRPs). By separately addressing the concerns of the banking industry, as well as some significant EPA concerns, the 1996 amendments have also reduced the pressure for significant CERCLA amendments in the near future.

The 1996 Amendments' History

The 1996 lender-liability amendments were passed with little public debate or discussion. In fact, no major national newspapers or environmental periodicals even covered the possibility that these amendments would be placed before President Clinton for signature before the 1996 elections. Nevertheless, after little legislative discussion, Subtitle E was inserted into a defense appropriations bill and related report,⁵ which in turn was made part of the 1996 omnibus appropriations act.

The Virtually Nonexistent Legislative History

Although the 103d and 104th Congresses considered proposals to provide enhanced lender-liability protections as parts of broad Superfund amendment efforts, stand-alone bills, and brownfields-targeted bills,⁶ no public hearings were held in connection with the particular language that became the 1996 lender-liability amendments.

In Senate and House statements appearing in the Congressional Record, proponents briefly discussed the amendments within a few days of their enactment. Two days before President Clinton signed these amendments into law, Rep. John LaFalce (D-N.Y.) described them in broad terms without discussing ways in which amendment language differed from earlier amendment efforts.⁷

Sen. Alfonse D'Amato (R-N.Y.) discussed the amendments in some detail on the day they were enacted.⁸ He [26 ELR 10657] stated that the appropriations bill amendments were based on Senate Bill 394, which he had sponsored earlier in the second session of the 104th Congress.⁹ He asserted that the new provisions "were the result of extensive negotiations among the administration, the lending industry and the interested committees of both Houses."¹⁰ Notably absent from his list of participants in the legislative process was the public or the environmental groups usually involved in the drafting and review of environmental laws.¹¹ Sen. Robert Smith (R-N.H.) stated that the new CERCLA language is "not a liability carve out," but instead restored CERCLA to its original intent: "Superfund as originally passed, did not intend to hold lending institutions liable …."¹² Additionally, as discussed below, both before and after enactment, senators engaged in colloquies advocating particular broad or narrow readings of the extent to which the 1996 amendments give EPA broad or narrow rulemaking authority.¹³

The Preamendment Legal Terrain

As has extensively been discussed in earlier scholarship and political critiques, as originally enacted CERCLA contained language that provided substantial liability protection for entities holding security interests in contaminated sites.¹⁴ While "owner[s]" or "operator[s]" were potentially liable for cleanup costs at sites they currently owned, or owned "at the time of disposal" of hazardous substances,¹⁵ the definition of "owner or operator" excluded "a person, who, without participating in the management of a vessel or facility, holds indicia of ownership primarily to protect his security interest in the vessel or facility."¹⁶ This provision has come to be known as the "secured creditor exemption."

By its terms, however, the preamendment CERCLA language left uncertain at what point a lender's involvement in a polluting facility would rise to the level of "participating in the management" such that the liability exemption would be lost. On its face, the preamendment exemption also did not extend liability protection to lenders who chose to foreclose and gain complete title to contaminated property. Merely holding a mortgage interest, however, clearly did not give rise to lender CERCLA liability.

Beginning in 1990, several conflicting circuit opinions highlighted the uncertainty surrounding the question of lender liability under CERCLA. In a decision causing great consternation among the lending community, the Eleventh Circuit in United States v. Fleet Factors Corp. stated that a lender could be liable, "without being an operator, by participating in the financial management of a facility to a degree indicating a capacity to influence the corporation's treatment of hazardous wastes."¹⁷ The risk that mere capacity to influence a borrower's conduct could give rise to liability led lenders to seek U.S. Supreme Court review, legislative amendment, or an EPA regulation that would largely nullify the Fleet Factors language. However, the Supreme Court denied review and legislative amendment efforts failed, at least until the 1996 amendments discussed here.

The Ninth Circuit subsequently declined to adopt the Eleventh Circuit's "capacity to influence" standard, instead concluding in In re Bergsoe that "there must be some actual management of the facility before a secured creditor will fall outside the exemption."¹⁸ Some cases went even further in protecting lenders, holding that lenders were still exempt from liability even after foreclosing on contaminated property.¹⁹ Other courts, in contrast, concluded that once a bank foreclosed on property in which it had previously held only a security interest, the bank ceased to be a secured creditor and instead assumed liability as a current owner or operator.²⁰

In 1992, EPA issued its lender-liability rule.²¹ That rule largely interpreted CERCLA's language in accordance with Bergsoe. Limited involvement in a potentially liable party's activities was allowed unless the lender became actually involved in hazardous-waste decisionmaking, environmental compliance, or substantially all day-to-day managerial control.²² The agency went even further, however, interpreting the secured creditor exemption to include post-foreclosure lender ownership of a contaminated site, provided [26 ELR 10658] that the bank made commercially reasonable efforts to sell the contaminated property after foreclosure.²³

Comfort provided by this new rule was short-lived. In Kelley v. U.S. Environmental Protection Agency,²⁴ the D.C. Circuit struck down EPA's lender-liability rule as beyond EPA's statutory authority. The court concluded that CERCLA § 107 did not grant EPA rulemaking authority, but instead was meant to leave EPA in the role of a litigator and courts as the interpreters of § 107.²⁵ EPA has nevertheless used its enforcement discretion to avoid imposing liability on lenders based on policies set forth in the lender-liability rule.²⁶ Private parties engaged in CERCLA litigation, however, are not bound by EPA's exercise of enforcement discretion. Additionally, lenders have remained concerned about the possibility of a change in EPA policy.²⁷

The 1996 Amendments

The New Lender Protections

The 1996 lender-liability amendments largely adopt the language and logic of the Bergsoe case and EPA's 1992 lender-liability rule. Section 2502(b) of the amendments modifies CERCLA § 101(20)'s definition of "owner or operator." As amended, § 101(20) excludes from liability a "lender that did not participate in management of a vessel or facility prior to foreclosure," notwithstanding subsequent foreclosure and attempts to sell or re-lease contaminated property.²⁸ As long as the foreclosing entity sells or re-leases "at the earliest practicable, commercially reasonable time, on commercially reasonable terms," the liability exemption remains intact.²⁹

Thus, a lender escapes liability as long as the lender does not engage in pre-foreclosure "participation in management."³⁰ This term is defined in accordance with Bergsoe and the stricken EPA rule to mean "actually participating in the management or operational affairs of a vessel or facility."³¹ Mere "capacity to influence" is explicitly rejected as a basis for imposing CERCLA liability on a lender.³²

The term "lender" is broadly defined to include institutional lenders, private lenders, and government lenders in the form of "insured depository institutions."³³ The term "security interest" is also broadly defined to include virtually any type of security interest connected with a loan.³⁴

The new amendments extend their liability protections to protect lenders from liabilities that might otherwise be imposed under RCRA with respect to contamination arising from underground storage tanks.³⁵ This provision incorporates by reference the protections for "security interest holders" that are now available under CERCLA.³⁶

The New Fiduciary and Government Protections and References to the Lender-Liability Rule

Section 2502(a) adds a new section "n" to CERCLA § 107. This section protects a broadly defined category of "fiduciaries," stating that their liabilities "shall not exceed the assets held in the fiduciary capacity."³⁷ It creates a "safe harbor" for fiduciaries taking steps to respond to or investigate hazardous substance risks, unless the fiduciary acts negligently and thereby "causes or contributes to the release or threatened release."³⁸ EPA is given authority to add to the categories of protected fiduciaries provided it does so "after providing public notice."³⁹

Section 2504 refers by name and citation to portions of EPA's 1992 lender-liability rule struck down in the Kelley case. It declares valid and judicially unreviewable the portion [26 ELR 10659] of EPA's lender-liability rule that sought to extend liability protections to government entities involuntarily coming into possession of contaminated property.⁴⁰ Under this new provision, EPA is also authorized, at a minimum, to issue amended rules related to involuntary government holders of contaminated sites.⁴¹ The implications of the particular wording of § 2504 to future EPA assertions of rulemaking authority are discussed below.

Implications of the Changed CERCLA Landscape

The bottom-line question for persons and institutions possibly impacted by CERCLA liabilities is the extent to which the 1996 lender-liability amendments change the legal terrain. This section addresses that question, focusing primarily on the amendments' impacts on lenders, environmentally protective activities, investment decisions, and EPA rulemaking authority.

Reducing Lenders' Role as CERCLA Institutional Adjuncts

Among the most significant impacts of these amendments is that banks will have reduced incentives to require investigation and cleanup of contaminated sites. Banks have in many ways acted as institutional adjuncts to EPA in furthering CERCLA's statutory purposes. Since CERCLA's passage, lenders have required extensive due-diligence investigations of real properties that could be used to secure loans, or on which borrowers would conduct their businesses. Investigation of potentially contaminated sites and polluting businesses by or at the behest of banks has created an economic disincentive to pollute that EPA, with its limited enforcement resources, could never have achieved alone.

The possibility that lenders would not just lose collateral, but also face CERCLA liability, created incentives for lenders to investigate the status of potential collateral and police borrowers' ongoing activities.⁴² The Fleet Factors decision, however, and the ensuing legal uncertainty, may have caused lenders to avoid potentially risky collateral altogether and to forego supervision of borrower activities for fear that the lenders' involvement or supervision would be deemed participation in management. The 1996 amendments, by rejecting the Fleet Factors capacity-to-influence test, and adopting a far more forgiving standard for "participation in management," undoubtedly will reduce such wariness. The question is whether, by freeing up lending possibilities, the role of lenders as institutional adjuncts or "'quasi-regulators'" will be diminished.⁴³

Clearly, lenders still have economic incentives to investigate borrowers, borrowers' operations, and any real properties owned or to be acquired by borrowers. Real properties held as security could become worthless if contaminated. Furthermore, a borrower with substantial CERCLA liabilities might face insolvency and total loss of its ability to pay debts. Because of reduced liability concerns, however, lenders likely will less often be the force behind site investigations and monitoring of borrowers' conduct. For example, lenders now have less incentive to investigate a borrower or a potential acquisition when the loan will be paid within a short period, when a borrower has substantial other assets such that insolvency is unlikely, or when the rate of return is high enough to render CERCLA liability a relatively minor concern. The transaction costs of site assessments and investigation of borrowers' operations will now be substantially higher in relation to the downside risks of many loans.

Open Questions for Lenders

The new 1996 CERCLA provisions contain a few major gaps and ambiguities likely to reduce the lending community's celebration over these amendments. By their terms, the 1996 amendments only exempt bank liabilities as owners or operators. There are, however, three additional, potential categories of CERCLA PRPs. Lenders who foreclose on contaminated property should still be wary of becoming liable as arrangers, or even transporters of hazardous substances from contaminated facilities that they come to hold as the result of foreclosure.⁴⁴

Uncertainty about the reach of the 1996 amendments is also clouded by drafting asymmetries. The amendments provide detailed language setting forth the many ways in which lenders can be involved in a borrower's activities before foreclosure without "participating in management" and losing the amendments' protection.⁴⁵ On their face, those provisions do not necessarily apply once a lender becomes the owner. After foreclosure, the bank may hold the property for a reasonable time without incurring CERCLA liability before selling it to a third party. What the lender can do during this period without becoming a full "owner or operator" under CERCLA, however, is not spelled out. Better drafting furthering the apparent goals of these amendments would have extended to lenders post-foreclosure protections for at least the same types of conduct declared acceptable when it occurs before foreclosure. Future [26 ELR 10660] rulemaking or litigation will undoubtedly clarify what banks can do after foreclosure without incurring full CERCLA liability.

Another question is whether a lender who, pre- or post-foreclosure, contributes to an actual or threatened release through negligence will be liable for cleanup costs. One would logically expect the answer to be yes. But while the simultaneously passed liability exemption for fiduciaries in the new amendments eliminates protections when a fiduciary's negligence causes an actual or threatened release, there is no similar limitation on the protections created by the lender-liability provisions.⁴⁶ Two earlier-enacted CERCLA provisions create similar categorical presumptive defenses or liability exemptions but provide that the defense or exemption is lost if that party's negligence causes a new hazardous-substance release or threat of release.⁴⁷ The 1996 amendments' lack of a parallel negligence liability carve-out from the broad lender-liability exemptions gives lenders at least a colorable argument, under the "expressio unius" statutory interpretation canon, that they escape liability altogether as long as they sell or lease the contaminated property promptly.⁴⁸

Lender foreclosures at substantially contaminated sites probably will continue to be rare due to the uncertainties confronting lenders who foreclose. On top of these uncertainties, a substantially contaminated site would remain difficult to sell or lease, since purchasers who fail to obtain "prospective purchaser" agreements will continue to confront liability risks.⁴⁹ At less contaminated sites that retain a positive value, however, the 1996 amendments make foreclosures a more attractive option.

Impacts on Due-Diligence Standards

Owners or operators seeking to assert CERCLA's "innocent purchaser" defense must show that they exercised due diligence prior to acquiring contaminated property. What exactly constitutes "due diligence," however, changes as professional standards change.⁵⁰ Since lenders finance most major real property and corporate acquisitions, lender-directed investigations have been responsible for raising the standard for such investigations. As lenders less frequently or less rigorously investigate borrowers' properties or operations, standards for what constitutes "customary practice" may become less rigorous, or at least stop becoming more rigorous. As a result, it is possible that fewer contaminated sites will be discovered and fewer polluters will have their operations critiqued by expert environmental consultants.

Removing a Brownfields Investment Disincentive

The greatest potential benefit of the 1996 lender-liability amendments will be to reduce disincentives for lenders to finance investment in the nation's brownfield sites. The abandoned or underutilized formerly industrial sites known as brownfields are frequently contaminated with hazardous substances.⁵¹ To the extent lenders' wariness about providing financing to rehabilitate such sites was attributable to liability fears, that disincentive is now largely eliminated.

Nevertheless, lender concerns may remain about borrowers' solvency due to CERCLA liabilities or business ventures of questionable economic viability. Many disincentives to brownfields investment remain that are unrelated to environmental liability concerns.⁵² Although brownfields concerns played a role in allowing lenders to obtain CERCLA relief, it remains an open question whether banks will now seek out opportunities to finance brownfield-rehabilitation efforts. The 1996 amendment may serve a doubly [26 ELR 10661] useful function of both removing a disincentive to brownfields investment and allowing analysts to see if lenders' avoidance of inner city industrial areas is caused by factors unrelated to fears of environmental liabilities.⁵³

Incentives to Structure Investments as Debt Rather Than Equity

For potential investors choosing how and whether to become involved with a company that is a pollution risk, lending after the 1996 amendments may now be a more attractive option than making an equity investment.⁵⁴ Equity owners now face greater risks of CERCLA liability than do lenders. While many equity owners may face no more CERCLA risk than the potential loss of the value of their equity investment, courts have occasionally indicated a willingness to impose personal liability on equity owners despite use of the corporate form.⁵⁵ In determining whether equity holders are liable as owners or operators, most courts have declined to ignore the corporate form altogether and have instead looked for some managerial involvement or link between the equity owner and the risk-creating activity.⁵⁶ But because equity owners do not enjoy a specific statutory protection they face a much more uncertain legal terrain than do lenders.

The amendments do not address the extent to which, without jeopardizing lender-liability protections, lenders can include as part of their loan agreements equity-related options, such as stock options, to allow lenders to become equity holders when and if the borrowers' businesses flourish. Such a strategy might give investors the initial protections provided to lenders but provide for potential future long-term investment appreciation.

EPA's Potential New Rulemaking Authority

A controversial question is whether § 2504 of the 1996 lender-liability amendments revives EPA's rulemaking authority under CERCLA's key liability provisions. This provision cryptically refers back to EPA's 1992 lender-liability rule and states:

Effective on the date of enactment [of the 1996 lender-liability amendments], the portion of the final rule … prescribing section 300.1105 of title 40 [concerning involuntary acquisition of property by the government] … shall be deemed to have been validly issued under authority of [CERCLA] and to have been effective according to the terms of the final rule…. Any reference in that portion of the final rule to [§ 300.1100] shall be deemed to be a reference to the amendments made by this subtitle.⁵⁷

Section 2504 continues by taking away the courts' jurisdiction to review the 1992 rule and states that its language shall not "be construed as limiting the authority of" EPA or the President to amend the referenced portions of the lender-liability rule consistent with the 1996 amendments.⁵⁸

As discussed above, the D.C. Circuit in the Kelley case struck down EPA's 1992 lender-liability rule on the grounds that EPA lacked authority to issue rules about the scope of CERCLA liability. Less than two weeks after passage of the 1996 lender-liability amendments, disputes have already begun simmering over whether these amendments resuscitate EPA's ability to engage in rulemaking under CERCLA's liability provisions. If EPA has such authority, then it has new latitude to modify CERCLA's reach. Given recent EPA initiatives, particularly in the area of brownfields, EPA would likely act to further limit CERCLA liability and appease EPA's many vocal critics. Some critics, however, evidently fear that EPA would use any newfound rulemaking authority to extend CERCLA's scope.⁵⁹ Legislative partisans interviewed by the author confirmed that the issue of whether the 1996 amendments could or should reconfirm EPA rulemaking authority was a source of heated debate in drafting sessions.⁶⁰

During the morning of September 30, 1996—hours before President Clinton signed the appropriations bill containing [26 ELR 10662] the CERCLA amendments—Senators Smith and D'Amato engaged in a colloquy on the Senate floor confirming their view that the 1996 lender-liability amendments were not intended to give EPA new rulemaking authority except in two narrow areas.⁶¹ Senator Smith stated his view that the amendment language "does not in any way disturb the central holding in the Kelley case, namely that absent a specific delegation … CERCLA does not authorize EPA to issue rules defining the scope of CERCLA liability."⁶² Several days after President Clinton signed the amendments into law, however, Sens. Frank Lautenberg (D-N.J.) and Max Baucus (D-Mont.) gave the amendments an opposite spin, concluding in their colloquy that although the Kelley case "struck down EPA's original lender liability rule … this legislation recognizes EPA's authority to promulgate rules in this area."⁶³ Senator Baucus responded affirmatively to Senator Lautenberg's question whether "the lender liability provisions in the omnibus appropriations bill are intended to reaffirm EPA's ability to issue such interpretive guidance."⁶⁴

How relevant any of these statements will be to court interpretations is open to question.⁶⁵ Post-enactment statements are especially suspect, but the interpretive significance of statements made on the Senate floor, only hours before transmission of a several thousand page appropriations bill to the President, is also questionable.

The actual statutory language is awkward and unclear. It does more than simply bless the substance of EPA's 1992 rulemaking concerning involuntary government holders of contaminated property. It does not, however, contain any clearly stated grant to EPA of authority to issue rules, apart from a statement that § 2504 does not limit EPA'sauthority to amend 40 C.F.R. § 300.1105.⁶⁶ Advocates for EPA's rulemaking authority will surely argue that the "shall be deemed to have been validly issued" legislative language means that, contrary to the D.C. Circuit's view, EPA must be deemed to have had the authority it asserted in 1992. In other words, the argument will be that Congress has now declared that EPA had and now has the authority the Agency claimed in 1992. Advocates for limiting EPA's authority will likely argue that this language does not address the logic underpinning the Kelley opinion, and should be narrowly read.⁶⁷

This issue will surely be litigated if EPA seeks to assert new or revived rulemaking authority. If this inartful and surely ambiguous legislative language gives rise to deferential review under Chevron, U.S.A., Inc. v. Natural Resources Defense Council,⁶⁸ then EPA will likely succeed.⁶⁹ If courts look for a legislative clear statement of intent to overrule court precedent interpreting central statutory language, then EPA will likely fail in its assertion of rulemaking authority.

The Perils of Substantive Lawmaking Through Appropriations Riders and Political Repercussions of the 1996 Amendments

As shown above, the amendments will have a broad impact but in several respects have unfortunate ambiguities or gaps that appear unintended, particularly in provisions relating to lenders' post-foreclosure conduct. Awkward and unclear language about the validity of EPA's 1992 lender-liability rule will give rise to new disputes over EPA's rulemaking authority. Partisans did not even consider possible impacts of creating new incentives for investors to seek returns through loans rather than equity ownership. Lenders' liability exemptions are not conditioned on any kind of due diligence or affirmative conduct that might further CERCLA's general goals. These shortcomings can in large part be attributed to how these amendments were enacted.

Instead of the usual environment committees and staff scrutinizing proposed language, and eliciting public comment and debate, these major amendments were part of a huge appropriations bill. While EPA, banks, environmental groups, and possibly some other industry groups were aware that these lender-liability issues were on the legislative table, the legislative process was abbreviated and resulting statutory language leaves much to be desired.

Enacting substantive legislation through appropriation riders can no longer be argued to be constitutionally suspect. The Supreme Court in Robertson v. Seattle Audubon Society upheld with little discussion the validity of appropriations riders, despite separation of powers concerns implicated by the riders' particular language.⁷⁰ But although such riders may pass constitutional muster, they are prone to error and inadequate consideration for several reasons.⁷¹ Because [26 ELR 10663] they are often hastily drafted and not subjected to a public process, they are less likely to be scrutinized by disinterested persons. Instead, as here, substantive appropriation riders are more likely to result from bilateral or trilateral negotiations among the most directly impacted institutions, rather than an open and more participatory legislative process. The limited nature of the appropriations-rider legislative process also increases the risks of special interest legislation that inadequately addresses public interests. Here, the beneficiaries are banks, fiduciaries, and the government both as the holder of contaminated property and as a possible rulemaker. The public may also benefit from reduced borrowing costs and increased incentives to invest in brownfields, but it remains to be seen if changing modes of investment will lead to more frequent taxpayer-financed cleanups and reduced incentives for lenders and borrowers to exercise environmental care.

The losers from these amendments are most likely to be those entities and institutions eager to reform Superfund. Banks, among the major proponents of Superfund reform, now have had their concerns addressed. EPA's incentive to promote substantive statutory amendments has also been somewhat reduced. CERCLA, however, still works to the detriment of many political and market institutions, and EPA still faces a lack of reauthorization of Superfund taxes that would replenish the fund that finances government-directed cleanups. Substantive Superfund reform thus is likely to remain high on the political agenda for the coming year, but with less broad-based support than before the recent amendments.

Conclusion

The Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996 gives lenders, fiduciaries, and involuntary government holders of contaminated property broad new statutory protection from CERCLA liabilities. New clarity in the law may free up lender financings previously deterred by court opinions raising lender concerns about strict, joint, and several liability for cleanup costs. The amendments nevertheless create several new interpretive difficulties, chief among them whether EPA can again assert rulemaking authority under CERCLA's liability provisions. Some of these interpretive difficulties are likely attributable to the amendments' passage as an appropriations rider advocated by banking committees and subjected to little public scrutiny. While the statutory amendments in many respects clear up the law, the full implications of these changes will only be known in the coming years as litigants debate over statutory meaning.

William W. Buzbee is Associate Professor of Law at Emory Law School. The author thanks Frank Alexander, Ralph Brubaker, William Carney, James Hughes, and research assistant Andrew Thompson for their thoughts and suggestions. He also thanks Michael Gerrard of Arnold & Porter, Randy Deitz of the U.S. Environmental Protection Agency, Karen Florini of the Environmental Defense Fund, and Alfred Pollard of the Bankers' Roundtable for their willingness to discuss the history and implications of the amendments. The author, of course, takes sole blame for the article's content.

1. Pub. L. No. 104-208 (Sept. 30, 1996).

2. 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA §§ 101-405. CERCLA was originally enacted in 1980, Pub. L. No. 96-510, 94 Stat. 2767, and significantly amended in 1986 by the Superfund Amendments and Reauthorization Act, Pub. L. No. 99-499, 100 Stat. 1613.

3. Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901-6992k, ELR STAT. RCRA §§ 1001-11012.

4. Telephone Interview with Randy Deitz, EPA Legislative Superfund Counsel, Office of Congressional and Legislative Affairs (Oct. 18, 1996) [hereinafter Deitz Interview].

5. See H.R. CONF. REP. NO. 104-863 on H.R. 3610, 104th Cong., 2d Sess., 142 CONG. REC. H11644, (daily ed. Sept. 28, 1996).

6. See, e.g., The Brownfields and Environmental Cleanup Act of 1996, S. 2028, §§ 301, 127, 302, 104th Cong., 2d Sess. (Aug. 2, 1996 version); The Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1995, S. 394, § 9011, 104th Cong., 1st Sess. (Feb. 10, 1995 version); The Superfund Reform Act of 1994, S. 1834, § 407, 103d Cong., 2d Sess. (June 17, 1994 version).

7. He credited his colleagues Reps. Doug Bereuter (R-Neb.) and Marge Roukema (R-N.J.) and "the work of the Environmental Lender Liability Coalition" for efforts in creating the new amendments. 142 CONG. REC. H12103, H12104 (daily ed. Sept. 28, 1996) (statement of Rep. LaFalce).

8. 142 CONG. REC. S11919, S11920-21 (daily ed. Sept. 30, 1996) (statement of Sen. D'Amato).

9. Id.

10. Id. at S11919.

11. Counsel Deitz of EPA confirmed that no public hearings were held on the 1996 lender-liability amendments, but stated that both relevant environment committees of the House and Senate were consulted about the amendments, as were representatives of the two most active public interest environmental groups, the Environmental Defense Fund and the Natural Resources Defense Council. Deitz Interview, supra note 4. Karen Florini of the Environmental Defense Fund confirmed that environmental not-for-profits were informed of the proposed amendment provisions. Telephone Interview with Karen Florini (Oct. 21, 1996). Senator D'Amato praised Sens. John Chafee (R-R.I.) and Robert Smith (R-N.H.), chairs of the Environment Committee and Superfund Subcommittee, respectively, "for their cooperation and assistance with this legislation." 142 CONG. REC. at S11919 (daily ed. Sept. 30, 1996).

12. 142 CONG. REC. 11895-96 (daily ed. Sept. 30, 1996) (statement of Sen. Smith).

13. See infra notes 57-69 and accompanying text.

14. See, e.g., Sara A. Goldberg, Lender Liability Under CERCLA: Shaping a New Legal Rule, 4 N.Y.U. ENVTL. L.J. 61 (1995); Edward B. Sears & Laurie P. Sears, Lender Liability Under CERCLA: Uncertain Times for Lenders, 24 ELR 10320 (June 1994); Edward B. White & Mark L. Prager, Environmental Lender Liability: Searching for Safe Harbors in the Wake of Kelley v. EPA, 1 WIS. ENVTL. L.J. 1 (1994); Stephen D. Stoltz, Lender Liability Under CERCLA: Death of the EPA Rule and Resurrection of Uncertainty, 9 J. NAT. RESOURCES & ENVTL. L. 505 (1993-94); Bruce P. Howard & Melissa K. Gerard, Lender Liability Under CERCLA: Sorting Out the Mixed Signals, 64 S. CAL. L. REV. 1187 (1991); Stanley M. Spracker & James D. Barnette, Lender Liability Under CERCLA, 1990 COLUM. BUS. L. REV. 527.

15. 42 U.S.C. § 9607(a), ELR STAT. CERCLA § 107(a).

16. Id. § 9601(20)(A)(iii), ELR STAT. CERCLA § 110(20)(A)(iii).

17. 901 F.2d 1550, 20 ELR 20832 (11th Cir. 1990), cert. denied, 498 U.S. 1046 (1991).

18. 910 F.2d 668, 672, 20 ELR 21229, 21231 (9th Cir. 1990) (emphasis in original).

19. See United States v. Mirabile, 15 ELR 20992 (E.D. Pa. 1985).

20. See Guidice v. B.F.G. Electroplating & Mfg. Co., 732 F. Supp. 556, 20 ELR 20439 (W.D. Pa. 1989); United States v. Maryland Bank & Trust Co., 632 F. Supp. 573, 16 ELR 20557 (D. Md. 1986); see also Spracker & Barnette, supra note 14, at 541-45 (critiquing these cases and lender-liability law as of 1990).

21. 57 Fed. Reg. 18344 (Apr. 29, 1992). In addition to addressing lender-liability issues in 40 C.F.R. § 300.1100 (1992), the EPA rule in 40 U.S.C. § 300.1105 (1992) included provisions protecting government entities in the context of "involuntary acquisition of property by the government."

22. Id. See generally ROBERT PERCIVAL ET AL., ENVIRONMENTAL REGULATION: LAW, SCIENCE AND POLICY 328-31 (2d ed. 1996) (providing a concise description of changing law regarding lender liability prior to the 1996 amendments).

23. 40 C.F.R. § 300.1100(d) (1992).

24. 15 F.3d 1100, 24 ELR 20511 (D.C. Cir. 1994).

25. Id. at 1105-08, 24 ELR 20513.

26. See EPA, Enforcement Against Lenders and Government Entities That Acquire Property Involuntarily, 60 Fed. Reg. 63517 (Dec. 11, 1995) (setting forth the policy of EPA and the U.S. Department of Justice).

27. Deitz Interview, supra note 4.

28. Pub. L. No. 104-208, subpt. E, § 2502(b) (1996) (adding a new subsection "E" to CERCLA § 101(20)).

29. Id.

30. Id. (adding a new subsection "F" to CERCLA § 101(20)).

31. Id.

32. Id. (adding a new subsection "F(i)(II)" to CERCLA § 101(20)). The amendments continue, in a new § 101(20)(F)(ii), by stating that a lender "shall be" considered to participate in management only if … the person—

(I) exercises decisionmaking control over the environmental compliance … such that the person has undertaken responsibility for the hazardous substance or disposal practices related to the vessel or facility; or

(II) exercises control at a level comparable to that of a manager … such that the person has assumed or manifested responsibility—

(aa) for the overall management … encompassing day-to-day decisionmaking with respect to environmental compliance; or

(bb) over all or substantially all operational functions … of the vessel or facility ….

Id.

33. Id. (adding a new subsection "G(iv)" to CERCLA § 101(20)).

34. The provision states that:

The term 'security interest' includes a right under a mortgage, deed of trust, assignment, judgment lien, pledge, security agreement, factoring agreement, or lease and any other right accruing to a person to secure the repayment of money, the performance of a duty, or any other obligation by a nonaffiliated person.

Id. (adding a new subsection "G(vi)" to CERCLA § 101(20)). Although the term "nonaffiliated person" is not defined in the 1996 amendments or in CERCLA prior to its amendment, an "affiliated" person in securities terminology usually refers to an entity or person that is a corporate affiliate or managerially linked to the other relevant entity. See 17 C.F.R. § 230.405 (1995). The 1996 lender-liability amendments thus appear to create a barrier for corporate affiliates structuring their financial dealings in the form of loans to take advantage of the new CERCLA protections for lenders. As discussed below, the new statutory protections for lenders are still likely to modify investment choices by making lending safer than investing in equity interests in polluting industries or entities acquiring possibly contaminated properties. See infra notes 54-56 and accompanying text.

35. Pub. L. No. 104-208, subpt. E, § 2503.

36. Id.

37. Id. § 2502(a) (adding a new subsection "n(1)" to CERCLA § 107).

38. Id. (adding new subsections "n(3)" and "n(4)" to CERCLA § 107). The broad definition of "fiduciary" is in new subsection "n(5)."

39. Id. (adding a new subsection "n(5)(XI)" to CERCLA § 107). EPA cannot provide safe harbors for fiduciary-like persons involved in a "trust or other fiduciary estate that was organized for the primary purpose of, or is engaged in, actively carrying on a trade or business for profit …." Id.

40. The implications for EPA rulemaking authority of § 2504 of the amendments are discussed below. See infra notes 57-69 and accompanying text.

41. Section 2504(c) of the amendments states: "No provision of this section shall be construed as limiting the authority of the President or a delegee [sic] of the President to amend the portion of [EPA's 1992 lender-liability rule concerning involuntary acquisition of property by the government]." This section is not an affirmative grant of rulemaking authority, but in the context of § 2504, will likely be construed as a grant or confirmation of that authority.

42. See, e.g., Goldberg, supra note 14, at 76-79.

43. Id. (quoting a past congressional staff member's statement that it was "a conscious intention of the law's authors to draw lenders and insurers into this new army of quasi-regulators") (citing to Philip T. Cummings, NEPA to CERCLA: Completing the Circle, ENVTL. F., Nov./Dec. 1990, at 11).

44. Telephone Interview with Alfred Pollard of the Bankers' Roundtable (Oct. 21, 1996) [hereinafter Pollard Interview]; Alfred Pollard, Memorandum: Clarification of Secured Party and Fiduciary Liability Under United States Environmental Statutes (Oct. 21, 1996) (on file with author, cited with permission). Mr. Pollard was one of the chief negotiators for the banking community in developing the language that became the 1996 CERCLA amendments. In his critique, written after enactment of the amendments, Mr. Pollard states that "if lead is in the ground at a site and a lender follows the new law then there would be no liability if the lead had caused environmental damage. On the other hand, if a lender takes over a building and removes lead paint and sends it for disposal, the lender could be liable as a generator or transporter. Thus, pre and post foreclosure decisions relating to environmental actions in which a lender is involved must still be carefully undertaken where they go beyond the property or collateral."

45. Pub. L. No. 104-208, subpt. E, § 2502(b) (adding new subsections "E(i)", "E(ii)", and "F" to CERCLA § 101(20)).

46. See id. at § 2502(a)(3) (certain fiduciary protections "do not limit the liability pertaining to a release or threatened release of a hazardous substance if negligence of a fiduciary causes or contributes to the release or threatened release"). While no similar exclusion from the lender protections is in the amendments, all partisans in the legislative process interviewed by the author assumed that lenders would become liable if through negligence they caused an actual or threatened release. This assumption is perhaps based on preexisting CERCLA § 101(35)(D), which vitiates an innocent purchaser defense if "by any act or omission," the defendant caused or contributed to a release or threatened release. 42 U.S.C. § 9601(35)(D), ELR STAT. CERCLA § 101(35)(D). This provision does not, however, by its terms apply to lenders who now have an independent defense to CERCLA liability.

47. See id. § 9607(d)(1), ELR STAT. CERCLA § 107(d)(1) ("no person shall be liable" for actions "taken or omitted in the course of rendering care, assistance or advice" in accordance with the national contingency plan, but also providing that "this paragraph shall not preclude liability for costs or damages as the result of negligence on the part of such person"). Similarly, but with a higher threshold for imposing liabilities, state and local governments are exempt from liability for their involvement in emergency response actions but can be liable for "costs or damages as a result of gross negligence or intentional misconduct." Id. § 9607(d)(2), ELR STAT. CERCLA § 107(d)(2). To hold lenders liable for damages resulting from negligence, courts or litigators would likely rely on CERCLA's general purposes and structure. See, e.g., United States v. CDMG Realty Co., 96 F.3d 706, 719-23, 26 ELR 21589, 21592 (3d Cir. 1996) (interpreting "innocent purchaser" due care defense and requirement of appropriate site investigations as implicitly meaning that a prospective purchaser of a contaminated site cannot be held liable merely for disturbing a contaminated site unless through negligence contamination problems were exacerbated).

48. The maxim "expressio unius est exclusio alterius" means "that the inclusion of one thing indicates the exclusion of the other." WILLIAM N. ESKRIDGE JR. & PHILIP P. FRICKEY, LEGISLATION: STATUTES AND THE CREATION OF PUBLIC POLICY 638-39 (2d ed. 1995). While this canon or maxim is not invariably applied, the Supreme Court has applied it in a number of recent cases, even looking to different statutes passed by different Congresses to determine whether the absence of a term is significant. See, e.g., Key Tronic Corp. v. United States, 114 S. Ct. 1960, 1967, 24 ELR 20955, 20957 (1994). In another recent case, Justice Scalia found the presence or absence of parallel provisions dispositive. Chan v. Korean Air Lines, 490 U.S. 122 (1989).

49. See EPA, Guidance on Agreements With Purchasers of Contaminated Property, 60 Fed. Reg. 34792 (July 3, 1995), ELR ADMIN. I 35626; see also William W. Buzbee, Remembering Repose: Voluntary Contamination Cleanup Approvals, Incentives and the Costs of Interminable Liability, 80 MINN. L. REV. 35, 78-79 & n. 143 (1995).

50. See 42 U.S.C. § 9601(35)(B), ELR STAT. CERCLA § 101(35)(B) (requiring a defendant raising an innocent purchaser defense to show that he or she undertook "at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability"). Because "appropriate inquiry" is keyed to "customary practice," the level of investigation that will suffice for a defense depends on the state of the art of such due diligence inquiries.

51. See, e.g., U.S. OFF. OF TECH. ASSESSMENT, STATE OF THE STATES ON BROWNFIELDS: PROGRAMS FOR CLEANUP AND REUSE OF CONTAMINATED SITES, Pub. No. OTA-BP-ETI-153 (1995) (discussing brownfields and the impacts of federal and state policies on their abandonment); Buzbee, supra note 49, at 39-40, 45-46.

52. See JAMES BOYD ET AL., RESOURCES FOR THE FUTURE, THE IMPACT OF UNCERTAIN LIABILITY ON INDUSTRIAL REAL ESTATE DEVELOPMENT: DEVELOPING A FRAMEWORK FOR ANALYSIS, DISCUSSION PAPER 94-03 (1994).

53. See William W. Buzbee, Brownfields, Environmental Federalism and Institutional Determinism, __ WM. & MARY J. OF ENVTL. L. & POL'Y __ (forthcoming Winter 1997).

54. The tax deductibility of interest as a business expense already creates incentives for companies needing an influx of capital to prefer borrowing over equity offerings, which disperse ownership interests and offer no tax deductibility.

55. Several cases contain language indicating a willingness to impose liability on shareholders. See, e.g., Donahey v. Bogle, 987 F.2d 1250, 1254, 23 ELR 20527, 20528-29 (6th Cir. 1993) (discussing cases and holding that a shareholder was a PRP because the "evidence clearly established that [the shareholder] had authority to prevent the contamination of the property by his corporation"), vacated on other grounds, 114 S. Ct. 2668 (1994) (vacated and remanded for reconsideration in light of Key Tronic Corp. United States, 114 S. Ct. 1960, 24 ELR 20955 (1994)); Kelley v. Thomas Solvent Co., 727 F. Supp. 1532, 1541-43, 20 ELR 20684, 20687-89 (discussing similar cases and stating a willingness to impose liability on shareholders despite shareholders' use of the corporate form). In the Thomas Solvent case, Judge Enslen develops a "prevention test" that would make imposition of liability on shareholders more likely if shareholders failed to exercise their authority to prevent contamination problems. Id. at 1543-44, 20 ELR at 20688-89. See also Erika C. Birg, Redefining Owner or Operator Under CERCLA to Preserve Traditional Notions of Corporate Law, 43 EMORY L.J. 771 (1994); Norman J. Fry, Liability of Shareholders and Corporate Directors, Officers, and Employees for CERCLA Response Costs, 1 ENVTL. LAW. 253 (1994); Lynda J. Oswald & Cindy A. Schipani, CERCLA and the Erosion of Traditional Corporate Law Doctrine, 86 NW. U. L. REV. 259 (1992) (analyzing cases addressing the imposition of liability on equity holders).

56. See generally Oswald & Schipani, supra note 55 (analyzing cases discussing shareholder liability finding few that, as of 1992, reached different conclusions than would result from a traditional analysis of shareholder liability); but see Fry, supra note 55, at 262-64, 272-73 (discussing more recent cases indicating a greater willingness to impose liability on shareholders).

57. Pub. L. No. 104-208, subpt. E, § 2504(a).

58. Id. § 2504(b) and (c). Section 2504(d) preserves the courts' jurisdiction to review future amendments to any lender-liability rule.

59. Compare Richard J. Pierce, Agency Authority to Define the Scope of Private Rights of Action, 48 ADMIN. L. REV. 1 (1996) (criticizing the Kelley case and arguing that EPA should be allowed to make policy by rulemakings) with Craig N. Johnston, Who Decides Who's Liable Under CERCLA?: EPA Slips a Bombshell Into the CERCLA Reauthorization Process, 24 ENVTL. L. 1045 (1994) (arguing against EPA's "carte blanche authority to interpret CERCLA's entire liability scheme").

60. Alfred Pollard of the Bankers' Roundtable said that EPA wanted affirmation of its rulemaking authority while Republicans were strongly opposed to any such grant or reaffirmation of rulemaking authority. He interprets the 1996 amendments as not giving EPA any new arguments to assert rulemaking authority. Pollard Memorandum supra note 44. Officials within EPA indicated in on and off-the-record discussions that while EPA might seek to use amendment language to assert rulemaking authority, the sufficiency of actually enacted language for such an assertion of rulemaking authority would surely be litigated.

61. 142 CONG. REC. S11896 (daily ed. Sept. 30, 1996). Under the interpretation favored by Senators Smith and D'Amato, EPA is only granted new rulemaking authority relating to additional fiduciary capacities or categories under the new CERCLA § 107(n)(5)(a)(i)(XI), or in the context of involuntary acquisition of property by the U.S. government. Id.

62. Id.

63. 142 CONG. REC. S12292-93 (daily ed. Oct. 3, 1996) (statements of Sens. Baucus and Lautenberg).

64. Id.

65. See WILLIAM N. ESKRIDGE, DYNAMIC STATUTORY INTERPRETATION 9-11, 225-38 (1994) (discussing the recent ascendance of "plain meaning" or "new textualism" statutory interpretation, and the shunning of reliance on legislative history to ascertain legislative meaning).

66. See Pub. L. No. 104-208, subpt. E, § 2504(c) (stating that § 2504 "shall not be construed as limiting the authority [of the President or EPA] to amend" the referenced portion of the lender-liability rule).

67. Opponents of any new EPA assertions of rulemaking authority can point to the specific authorizations of power to EPA to issue additional rules about categories of protected fiduciaries or involuntary government holders of contaminated property as indicating no broader general EPA rulemaking authority.

68. 467 U.S. 837, 14 ELR 20507 (1984).

69. In Chevron, the Court anticipated circumstances where statutory ambiguities would result because "Congress was unable to forge a coalition on either side of the question, and those on each side decided to take their chances" on future developments. The language of Justice Stevens' opinion, nevertheless, addresses a slightly different situation than is presented by the 1996 amendments to CERCLA. In these amendments, the key ambiguity left unresolved is whether EPA now has rulemaking authority. Whether agency interpretations about the reach of their own jurisdiction deserve Chevron deference is a question unresolved by the Supreme Court. See Michael Herz, Deference Running Riot: Separating Interpretation and Lawmaking Under Chevron, 6 ADMIN. L.J. 187, 216-21 (1992).

70. 503 U.S. 429, 22 ELR 20663 (1992) (upholding the constitutionality of a substantive rider even though it appeared to direct outcomes of pending cases under preexisting statutes and rules; the Court sought to avoid a constitutional infirmity and construed the language as modifying the underlying statutes).

71. See Neal E. Devins, Regulation of Government Agencies Through Limitation Riders, 1987 DUKE L.J. 456, 465-66 (discussing the shortcomings of appropriations riders); Charles B. Rangel, Use of Congressional Rules to Delay Progress in Civil Rights Policy, 8 J. OF LEGIS. 62, 65 (1981) (same).