USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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No. 93-1699
NORTHEAST DORAN, INC.,
Plaintiff, Appellant,
v.
KEY BANK OF MAINE,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Morton A. Brody, U.S. District Judge]
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Before
Torruella, Selya, and Stahl,
Circuit Judges.
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Alfred C. Frawley with whom Peter D. Lowe and Brann & Isaacson
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were on brief for appellant.
David B. Van Slyke with whom Michael Kaplan, Jonathan S. Piper,
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and Preti, Flaherty, Beliveau & Pachios were on brief for appellee.
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January 28, 1994
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STAHL, Circuit Judge. In its complaint, Northeast
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Doran, Inc. ("Doran") alleged that Key Bank of Maine ("Key"),
mortgagee and subsequent vendor of the property at issue, was
liable for clean-up costs under the Comprehensive
Environmental Response, Compensation and Liability Act
("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"). The district court
dismissed the complaint for failure to state a claim,
reasoning that Key's knowledge of potential contamination did
not render it liable under CERCLA. We affirm.
I.
I.
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FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
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In December 1989, Ed Harmon & Sons, Inc. ("Harmon")
purchased property located at the Skowhegan Industrial Park
in Skowhegan, Maine ("the property"). The purchase was
financed with a mortgage from Key Bank. In June of 1990,
Doran leased the property from Harmon.
In July of 1991, with Harmon unable to meet its
mortgage payments, Key Bank sought and received a Judgment of
Foreclosure and Order of Sale from the Superior Court of the
State of Maine and made plans to auction the property. On
October 21, 1991, Key hired an independent consultant to
conduct a Maine Superlien Site Assessment ("the assessment")
of the property. Two weeks later, on November 7, 1991,
without having received the results of the assessment, Key
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completed its disclosure statement for use in the auction
prospectus. Key stated in that document that it had no
knowledge of any hazardous materials on the property.
On November 18, 1991, Key received the results of
the assessment, which showed potential groundwater
contamination on the property. Key took no steps to make the
results of the assessment known to bidders prior to the
auction.
At the auction on November 21, 1991, Doran, who
remained in possession of the property, entered the highest
bid and signed a purchase and sale agreement for the
property. When Doran sought financing from Key for its
purchase of the property, Key refused, citing for the first
time the result of the assessment. Doran, apparently able to
obtain other financing, purchased the property from Key via
quitclaim deed on December 17, 1991.
After purchasing the property, Doran notified the
Maine Department of Environmental Protection ("DEP") of
potential contamination on the property. DEP assessed costs
against Doran, the "owner" of the property under CERCLA.
Doran brought an action in the United States District Court
for the District of Maine, seeking a declaratory judgment
that Key was liable for clean-up costs on the property.
Among other things, Doran argued that Key, unlike similarly
situated secured creditors, was not entitled to CERCLA's
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"security interest holder" exemption and that a right of
action existed due to Key's knowledge of potential
contamination prior to and at the time of sale. The district
court dismissed Doran's complaint for failure to state a
claim upon which relief could be granted, finding that Key
was not a liable party under CERCLA and its relevant
amendments. We affirm.
II.
II.
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DISCUSSION
DISCUSSION
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"We review a Rule 12(b)(6) dismissal de novo,
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crediting all allegations in the complaint and drawing all
reasonable inferences favorable to the plaintiff." Heno v.
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FDIC, 996 F.2d 429, 430 (1st Cir. 1993); see also Scheuer v.
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Rhodes, 416 U.S. 232, 236 (1974).
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Our analysis begins with CERCLA's definition of
liable parties. CERCLA, 42 U.S.C. 9607(a), provides that
liability for environmental clean-up shall attach, inter
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alia, to:
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(1) the owner and operator of a vessel or
a facility,
(2) any person who at the time of
disposal of any hazardous substance owned
or operated any facility at which such
hazardous substances were disposed of . .
. .
While Key, having obtained a judgment of
foreclosure on the property, might appear at first glance to
be an "owner" or "operator" of the property for purposes of
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section 9607(a), CERCLA's definition provisions clearly
dictate otherwise. Under 42 U.S.C. 9601(20)(A), the terms
"owner" or "operator" "do not include 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." As we recently stated
in Waterville Indus., Inc. v. Finance Auth. of Maine, 984
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F.2d 549, 552 (1st Cir. 1993), "the purpose of the statutory
exception, apparent from its language and statutory context,
is to shield from liability those `owners' who are in essence
lenders holding title to the property as security for the
debt." Moreover, "[s]o long as the [security interest
holder] makes a reasonably prompt effort to divest itself of
its unwelcome ownership, we think continued coverage under
the exception serves its basic policy: to protect bona fide
lenders and to avoid imposing liability on owners who are not
in fact seeking to profit from the investment opportunity
normally presented by prolonged ownership." Id. at 553.
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Doran does not allege, nor could it on the record,
that Key's effort to divest itself of title to the property
was anything less than "reasonably prompt." Id. More
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importantly, in support of its allegation that Key held the
property for a purpose other than as security for its
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mortgage on the property, Doran cites only the existence of
the assessment, and Key's withholding of its results.
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Standing alone, however, the existence of a site assessment,
even one which reveals the existence of possible
environmental contamination and which is concealed from the
eventual purchaser, is insufficient to remove a holder from
the "security interest holder" exception in section
9601(20)(A). See Waterville Indus., 984 F.2d at 554 (holding
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that security interest holder exception in section
9601(20)(A) applied despite fact that security holder sold
the property "without making full disclosure of the hazardous
wastes or of notices of violation sent to [the security
interest holder]"); see also United States v. McLamb, 5 F.3d
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69, 70-74 (4th Cir. 1993) (similar, where security interest
holder "learned of the previous oil spill at [property] after
the foreclosure but prior to selling the property").1
Accordingly, Doran's complaint fails to allege any set of
facts under which Key could be liable under CERCLA.
Doran also argues that the security interest
exception should not apply in view of 42 U.S.C.
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1. Recent regulations promulgated by the United States
Environmental Protection Agency (EPA), though prospective and
not dispositive in the instant case, also indicate that
security interest holders do not compromise their eligibility
for section 9601(20)(A) status by conducting environmental
audits. See 40 C.F.R. 300.1100; Final Rule on Lender
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Liability Under CERCLA, 57 Fed. Reg. 18,344, 18,353 (Apr. 29,
1992). See also McLamb, 5 F.3d at 73 & n.8; Waterville
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Indus., 984 F.2d at 553 & n.6.
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9601(35)(C),2 which holds liable those defendants who
"owned" and then transferred property with "actual knowledge"
of contamination. As noted above, however, Key was never an
"owner" as that term is defined by CERCLA. See supra at pp.
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4-6. Nor do we find any support for Doran's argument that
section 9601(35)(C) somehow renders liable parties who would
otherwise fall under the security interest holder exception
of section 9601(20)(A).3 Thus, we find no means for
applying section 9601(35)(C) to Key.
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2. Section 9601(35) provides:
Nothing in this paragraph or in section
9607(b)(3) of this title shall diminish
the liability of any previous owner or
operator of such facility who would
otherwise be liable under this chapter.
Notwithstanding this paragraph, if the
defendant obtained actual knowledge of
the release or threatened release of a
hazardous substance at such facility when
the defendant owned the real property and
then subsequently transferred ownership
of the property to another person without
disclosing such knowledge, such defendant
shall be treated as liable under section
9607(a)(1) of this title and no defense
under section 9607(b)(3) of this title
shall be available to such defendant.
3. Rather, the cases cited by Doran apply section
9601(35)(C) solely to parties who were otherwise "owners"
under section 9607(a). See, e.g., Westwood Pharmaceuticals,
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Inc. v. National Fuel Gas Distrib. Corp., 964 F.2d 85, 90-91
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(2nd Cir. 1992) (holding that section 9601(35)(C) applies to
"owners" under both sub-section (1) and sub-section (2) of
section 9607(a)); see also Fallowfield Dev. Corp. v. Strunk,
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1993 WL 157723, *5 (E.D. Pa.) ("In order for [plaintiff] to
establish its prima facie case . . . it must prove that
[defendants] are within one of the [four] classes of persons
subject to liability under section 9607(a).").
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In sum, here, as in Waterville Indus., 984 F.2d at
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554, the right of contribution is a statutory one that turns
solely on Key's status as an "owner," a status defeated by
the security interest exception. Any other claims which
Doran may have against Key are appropriately brought in
another forum. Cf. id.; McLamb, 5 F.3d at 73-74 (finding no
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requirement of "commercial reasonableness" under CERCLA).
III.
III.
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CONCLUSION
CONCLUSION
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For the foregoing reasons, the order of the
district court dismissing Doran's complaint for failure to
state a claim is
Affirmed.
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