In Re: Bergsoe Metal Corporation

In Re: Bergsoe Metal Corporation 910 F.2d 668 (1990)

Lender Liability

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), provides that the "owner" of a contaminated facility is liable for the costs of cleanup except when security interest is involved.

Facts:

·         Bergsoe Metals is a Delaware corporation formed in 1978 for the purpose of conducting a lead recycling operation. Whereas, The Port of St. Helens is a municipal corporation in Oregon empowered to issue revenue bonds to promote industrial development in the St. Helens, Oregon area.

·         Sometime in 1978, representatives of Bergsoe executed a Memorandum of Agreement with Port wherein Port agreed to issue industrial development revenue bonds and pollution control revenue bonds to provide funds for the acquisition of land and the construction of a secondary lead recycling plant and related pollution control equipment in St. Helens.

·         The first transaction was a sale-and-lease-back arrangement between Bergsoe and the Port. Bergsoe conveyed to the Port by warranty deed the 50 acres and the recycling plant to be built there. The Port and Bergsoe then entered into two leases to cover the property and the plant. Bergsoe agreed to construct the plant and to pay rent on the leases directly to the Bank.

·         The second transaction involved two mortgage and indentures of trust between the Port and the Bank, corresponding to the two leases. The Port agreed to issue its revenue bonds, and mortgaged to the Bank, as trustee for the bondholders, the property and recycling plant.

·         In September 1983, the Bank declared Bergsoe in default on the leases. Subsequently, the Bank and Bergsoe agreed upon a workout arrangement, whereby Front Street Management Corporation would manage the recycling facility.

·         The plant did no better under Front Street's management, and the plant shut down in 1986. The Bank, thereafter, put Bergsoe into involuntary bankruptcy. By that time, the Oregon Department of Environmental Quality had determined that various hazardous substances had contaminated the plant site.

·         In September 1987, the Bank and the trustee in bankruptcy filed suit against EAC, the companies who own Bergsoe, to collect on Bergsoe's debts. The plaintiffs subsequently amended their complaint to request a declaration that EAC is liable for the costs of cleaning up the environmental contamination.

·         The defendants filed a counterclaim, including a third party complaint against the Port, alleging that the Bank and the Port are liable for the costs of cleanup under CERCLA. The Port moved for summary judgment, alleging that it does not own the recycling plant for CERCLA purposes, and therefore has no CERCLA liability.

·         The bankruptcy court granted the motion, which the district court affirmed. EAC appeals the grant of summary judgment in favor of the Port.

Issue: Whether Port, as the owner, should be held liable for the costs of cleaning up.

Held: The Court held that the Port holds indicia of ownership primarily to protect its security interest and that it did not participate in the management of the Bergsoe recycling plant. The Port is therefore not an owner under the law, and not liable for cleanup costs. The judgment of the district court is affirmed.

Ratio:

·         CERCLA holds the "owner" of a facility liable for the costs of cleaning up hazardous substances released at the facility.

·         The CERCLA definition of "owner" specifically excludes "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."  CERCLA thus protects secured creditors who do not participate in management of the facility.

·         In the present case, the fact that the Port holds paper title to the Bergsoe plant does not, alone, make it an owner of the facility for purposes of CERCLA. Port has the deed in the plant primarily to ensure that Bergsoe would meet its obligations under the leases and therefore under the bonds. In other words, the Port has a security interest in the property.

·         Essentially, the Bank financed the Bergsoe plant; the Port's only involvement was to give its approval to the project and to issue the bonds that served as the vehicle for the financing. The Port received the warranty deeds as part of a transaction whose sole purpose was to provide financing for the plant. Port held title to the property not to ensure that it would receive payment, but to guarantee that Bergsoe would cover the Port's own indebtedness under the bonds.

·         The Port may nonetheless be liable under CERCLA if it participated in the management of the Bergsoe plant. Participation means there must be some actual management of the facility before a secured creditor will fall outside the exception.

·         In this case, there was none. There is no evidence that the Port exercised any control over Bergsoe once the two parties signed the leases. No evidence was likewise presented that the Port participated in the decision to hire Front Street; those negotiations were entirely between the Bank, Bergsoe and Front Street. The Port's participation was limited to an agreement between itself, the Bank and Bergsoe. The Port never entered into a contract with Front Street, and there is no evidence of any negotiations between the two.

·         Creditors do not give their money blindly, particularly the large sums of money needed to build industrial facilities. Lenders normally extend credit only after gathering a great deal of information about the proposed project, and only when they have some degree of confidence that the project will be successful. A secured creditor will always have some input at the planning stages of any large-scale project and, by the extension of financing, will perforce encourage those projects it feels will be successful. If this were "management," no secured creditor would ever be protected.