Amicus Curiae Brief — Fleet Factors Corp. v. United States, 111 S. Ct. 752 (1991) (No. 90-504)

No. 90-504

Supreme Court, U.S.

=FLED

In The OCT 19 1999

Supreme Court of the United

October Term, 1990 L

»

.

FLEET FACTORS CORP.,

Petitioner,

V.

UNITED STATES OF AMERICA,

Respondent.

a»

_

On Petition For Writ Of Certiorari To

The United States Court Of Appeals

For The Eleventh Circuit

a

_

BRIEF OF AMICUS CURIAE,

AMERICAN COLLEGE OF REAL ESTATE LAWYERS,

IN SUPPORT OF PETITIONER

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vv

tannin C. Taus* RIcHARD R. GOLDBERG*

Committee on Amicus Briefs President-Elect

American College of American College of

Real Estate Lawyers Real Estate Lawyers

First Union Center 10275 Little Patuxent Pkwy.

100 South Ashley Drive Columbia, Maryland 21044

Suite 2100 (301) 992-6416

Post Office Box 3430 OFC I.

Tampa, Florida 33601 f Counsel:

(813) 228-8000 Rocer D. SCHWENKE

*Counsel of Record for ge dogrm Environmental

the Amicus: aw Committee

a, JOHN S. HOLLyFIreELD

Rea Estate LAwyers President

733 15th Street, NW, Rosert M. ZINMAN

Suite 700 Chairman, Committee on

Washington, D.C. 20005 Amicus Briefs

202 -1344

(202) 393-13 American College of

Real Estate Lawyers

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

pe Be es. 8 oy SB re ii

INTEREST OF AMICUS CURIAE .................. 1

SUMMARY OF ARGUMENT....................... 2

FOE O RETRACT a Tt ey een 4

I. THE ELEVENTH CIRCUIT ERRED IN HOLD-

ING THAT A NON-FORECLOSING SECURED

CREDITOR MAY INCUR SECTION 9607(a)(2)

CERCLA LIABILITY MERELY ON THE BASIS

OF A CAPACITY TO INFLUENCE A BOR-

ROWER’S TREATMENT OF HAZARDOUS

RES ee he 4

A. The Eleventh Circuit has created a stan-

dard for CERCLA liability inconsistent

with and exceeding the statutory liabilities

established by CERCLA................. 4

B. The Eleventh Circuit has created a stan-

dard for CERCLA liability inconsistent

with customary creditors’ rights and loan

oo ee eT eer ere oO

Il. THE ELEVENTH CIRCUIT’S DECISION HAS

APPLIED A STANDARD FOR HAZARDOUS

WASTE LIABILITY THAT DIRECTLY CON-

FLICTS WITH ESTABLISHED CASE LAW

AND WITH THE REASONABLE EXPECTA-

TIONS OF LENDERS AND BORROWERS

Se BONNE GE Sc ck bees awssccsinetes 11

GPE SANG 4A v0 65 65 de k60 backed seanvonnen 18

ii

TABLE OF AUTHORITIES

Page

CasEs

Coastal Casting Service v. Aron

No. H-86-4463 (S.D. Tex. April 8, 1988) ........... 13

Fleet Factors Corp. v. United States of America

901 F.2d 1550 (11th Cir. 1990)................. passim

Guidice v. BFG Electroplating & Mfg. Co.

732 FSupp. 556 (W.D. Pa. 1989)................. 4, 13

In re Bergsoe Metal Corp.

910 F.2d 688 (9th Cir. 1990).............. 3, 4, 16, 17

Rockwell International v. I.U. International Corp.

702 Fowmpp. 1306 (N.D. TH. 19GB)... .. 22... een ees 13

United States v. Nicolet, Inc. 3

712 FSupp. 1193 (E.D. Pa. 1989) Oe Tee reer 8

United States v. Fleet Factors Corp.

724 FSupp. 955 G.D. Ga. 19068) ..............0000 13

United States v. Maryland Bank & Trust Co.

632 F.Supp. 573 (D. Md. 1986)............... 4, 8, 12

United States v. Mirabile

No. 84-2280 (E.D. Pa. Sept. 6, 1985)..... 4, 12, 13, 16

United States v. New Castle County

727 FSupp. O54 Gd: Del WS)... wo. cece eee ees 13

STATUTES

42 USC §§9601-9675 (“CERCLA”) ............... passim

Ge Wee IE hc ka ddenn ca rcedetaaks cadenapeswon 6

Go Sen SD 8 knoe dcctceccecpuasteacdncageeuce 6, 7

iii

TABLE OF AUTHORITIES - Continued

Page

Rutes oF Couri

SU Sake Els Be nea paknsdbhw hen VEE Sons be nccenrecesves 17

OtTHER AUTHORITIES

H.T. Tiffany, The Law of Real Property §1380.......... 8

a7

BRIEF AS AMICUS CURIAE

>

INTEREST OF AMICUS CURIAE

The American College of Real Estate Lawyers is a

non-profit corporation organized for the purpose of gath-

ering together lawyers distinguished for their expertise

and high standards of professional and ethical conduct in

the practice of real estate law, in order, inter alia, to

improve and reform real estate law and practice and to

speak upon matters of interest and importance to real

estate law and practice. College members are required to

have concentrated their practice in real estate law for a

period of not less than ten years. Additional requirements

established by the Board of Governors include a demon-

strated willingness to devote time to improving real

property law, by writing, teaching or participating in

organized bar projects. The College has over 700 mem-

bers from every state and the District of Columbia. They

represent owners, borrowers, lenders, purchasers, sellers,

institutional investors, developers, in short, those regu-

larly engaged in both pre- and post-closing activities

relating to consummating, monitoring in a meaningful

way, and working out secured loan transactions involving

both real and personal property.

The College is interested in this case because it sub-

stantially impacts secured creditor investment and loan

portfolio administration decisions. The decision below

established a new classification of liability for secured

creditors that precludes consistent, uniform and coherent

loan administration and loan initiation decisions.

The Eleventh Circuit has established a new test as to

when one holding indicia of ownership primarily to pro-

tect his security interest participates in management suf-

ficiently so as to lose the statutory exemption afforded

secured creditors under CERCLA.

Because of the hundreds of thousands of secured

lending transactions each year throughout the country, it

is imperative that this unwarranted standard not be per-

mitted to stand. The College believes that this Court’s

review of the decision below is essential if the dual goals

of environmental due diligence and making credit avail-

able to the nation’s borrowers are to be met.

The College believes that clarification by this Court

of the circumstances whereby a secured creditor may

incur liability under the Comprehensive Environmental

Response, Compensation, and Liability Act (“CERCLA”)

is essential in order to eliminate the chilling effect of the

decision below on the availability of credit to the nation’s

borrowers. For that reason, the College submits this brief

in support of the Petitioner.

o

SUMMARY OF ARGUMENT

The Eleventh Circuit in the case at bench departed

from established district court precedent and a reason-

able construction of CERCLA’s secured creditor exemp-

tion when it formulated a new standard for determining

when a secured creditor participates in management so as

to become liable under CERCLA as an owner or operator.

That court held that it is not necessary for a secured

creditor actually to involve itself in the borrower’s day-

to-day operations or to participate in management deci-

sions relating to hazardous waste in order to be liable.

Rather, the court held that a secured creditor will be

liable if an inference can be drawn from the secured

creditor’s involvement with the borrower’s business that,

if the secured creditor so chose, it could affect its bor-

rower’s hazardous waste disposal decisions, or, as the

court put it another way, that the secured creditor will be

liable if it has the capacity to influence the borrower’s

treatment of hazardous waste, even if there is absolutely

no proof whatsoever that it exercised that capacity or that

its management activities, indeed, resulted in influencing

the borrower’s treatment of hazardous waste.

This radically expansive new threshold for the

exemption’s availability has sent a shock wave through-

out the country because, to say the least, the distinction

between those lending activities that CERCLA exempts

and those that will subject a secured creditor to liability

are now virtually indistinguishable in the Eleventh Cir-

cuit.

Moreover, because of the Ninth Circuit’s subsequent

decision in In re Bergsoe Metal Corp., 910 F.2d 688 (9th Cir.

1990), which directly conflicts with the case at bench,

lenders and borrowers, large and small, throughout the

county, are faced with a Hobson’s choice regarding what

they can or should do or avoid in order to qualify for the

protection intended by Congress. Clear, predictable, fair,

uniform and rational rules should exist for borrowers and

lenders affected by the broad reach of CERCLA liability.

The decision below would inject an unwarranted new

standard as to when a secured creditor may be liable for

4

CERCLA response costs, a standard well beyond that

intended by Congress. It is an extremely important issue

that requires resolution by this Court.

—+

ARGUMENT

I. THE ELEVENTH CIRCUIT ERRED IN HOLDING

THAT A NON-FORECLOSING SECURED

CREDITOR MAY INCUR SECTION 9607 (a) (2)

CERCLA LIABILITY MERELY ON THE BASIS OF

A CAPACITY TO INFLUENCE A BORROWER’S

TREATMENT OF HAZARDOUS WASTES.

A. The Eleventh Circuit has created a standard

for CERCLA liability inconsistent with and

exceeding the statutory liabilities established

by CERCLA.

To the extent that any “safe harbor” from CERCLA

liability exists, it is embodied in the secured creditor

exemption construed by the Eleventh Circuit in Fleet Fac-

tors Corp. v. United States of America, 901 F.2d 1550 (11th

Cir. 1990), the Ninth Circuit in its more recent Bergsoe

decision, and earlier district court decisions which gener-

ally stand for the proposition that lenders are not liable

for cleanup costs so long as they do not foreclose and do

not participate in the day-to-day operations of the

secured facility. See United States v. Mirabile, No. 84-2280

(E.D. Pa. Sept. 6, 1985); United States v. Maryland Bank &

Trust Co., 632 F. Supp. 573 (D. Md. 1986); and Guidice v.

BFG Electroplating & Mfg. Co., 732 F. Supp. 556 (W.D. Pa.

1989).

Prior to Fleet, the cases had held that the manage-

ment activities of secured creditors must be relatively

!

significant before the CERCLA exemption would not be

available. In stating that “the critical issue is whether

Fleet participated in management sufficiently to incur

liability under the statute,” and that “In order to achieve

the ‘overwhelming remedial’ goal of the CERCLA statu-

tory scheme, ambiguous statutory terms! should be con-

strued to favor liability for the costs incurred by the

government in responding to the hazards at such facili-

ties,” the court held that:

Under the standard we adopt today, a secured

creditor may incur .. . liability, without being an

operator, by participating in the financial man-

agement of a facility to a degree indicating a

ity to influence the corporation’s treatment

of hazardous wastes. It is not necessary for the

secured creditor actually to involve itself in the

day-to-day operations of the facility in order to

be liable - although such conduct will certainly

lead to the loss of the protection of the statutory

exemption. Nor is it necessary for the secured

creditor to ee in management decisions

relating to hazardous waste. Rather, a secured

creditor will be liable if its involvement with the

management of the facility is sufficiently broad to

support the inference that it could affect hazard-

ous waste disposal decisions if it so chose... .

renee in our discussion should preclude a

creditor from monitoring any aspect of a

debtor’s business. Likewise, a secured creditor

can become involved in occasional and discrete

financial decisions relating to the protection of its

security interest without incurring liability.

901 F.2d at 1557-58 (emphasis added). One of the few, if

not the only, hints the court gave regarding what the

' The College respectfully suggests the absence of such

perceived ambiguity.

particular terms used in its new standard mean is found

in the first sentence of footnore 13 on p. 1559 of the

opinion,? and it is as undefined as the phrase “capacity to

influence” is itself.

Respondent contended that Fleet was liable for

response costs as either a “present owner and operator of

the facility,” relying on 42 USC §9607(a)(1), or as the

owner or operator of the facility at the time the wastes

were disposed of, relying on 42 USC §9607(a)(2). The

court rejected the claim for liability as a “present owner

and operator,” applying rules of statutory construction

and concluding that imposing liability on this basis

would “torture the plain statutory meaning.” Fleet, 901

F.2d at 1555. Curiously, the court views the statute as

having “plain . . . meaning” and also labels it “ambig-

uous.”

Nevertheless, the Eleventh Circuit proceeded to

engage in just such a torture of plain statutory meaning

when it concluded that liability could arise under 42 USC

§9607(a)(2) for a secured creditor, without being an opera-

tor, by “participating in the financial management of a

facility to a degree indicating a capacity to influence the

corporation’s treatment of hazardous wastes.” Fleet, 901

F.2d at 1557. As the Petitioner properly acknowledges in

its petition, the decision below creates a “new class” of

liable parties under §9607(a)(2), a class which does not

require any participation in day-to-day operations of a

2 “Generally, the lender’s capacity to influence a debtor

facility's treatment of hazardous waste will be inferred from

the extent of its involvement in the facility’s financial manage-

ment.” 901 F.2d at 1559 n.13.

facility, but instead merely depends on participation in

“financial management” to a degree indicating a capacity

to influence how hazardous wastes will be treated, and a

class unsupported by the statutory provisions of

CERCLA or by its legislative history.

Fleet does not even purport to require a secured

creditor to be an “operator” before it could incur

§9607(a)(2) liability. Instead, liability allegedly is created

by participation in the financial management of a facility.

The opinion makes clear that liability does not depend on

involvement in the “day-to-day” operations of a facility,

nor does it require that the secured creditor participate in

management decisions relating to hazardous waste.

Instead, the court decides that liability can arise for a

secured creditor “if its involvement with the manage-

ment” of a facility is “sufficiently broad to support the

inference that it could affect hazardous waste disposal

decisions if it so chose.” Fleet, 901 F.2d at 1558 (emphasis

added). In doing so, as the Petitioner aptly points out, the

court “turns the statute on its head by using the exemp-

tion to subject lenders to liability rather than to shield

lenders from liability.”

Notwithstanding the lack of legislative support for

this tortured construction, the court contends that such

construction is warranted by legislative history, noting

particularly the remarks of Representative Harsha, who

introduced the exemption:

This change is necessary because the original

definition inadvertently subjected those who

hold title to a... . facility, but do not participate

8

in the management or operation and are not oth-

erwise affiliated with the person leasing or oper-

ating the. . . facility, to the liability provisions of

the bill.

Fleet, 901 F.2d at 1558 n. 11 (citing Remarks of Rep.

Harsha, reprinted in 2 Senate Comm. on Environmental

and Public Works, 97th Cong., 2d Sess., 2 A Legislative

History of the CERCLA 945 (Comm. Print 1983)) (emphasis

in original).

But the court’s interpretation overlooks the conjunc-

tive “and,” and instead appears to read the explanation as

if it were “or” The opinion suggests that the use of the

word “affiliated” creates a lower threshold for secured

creditor liability. Nothing in its history supports the

court’s conclusion that CERCLA liability for a secured

creditor can arise solely through an inference that the

creditor could affect hazardous waste disposal decisions

if it so chose.?

3 The opinion also neglects other statutory history of the

secured creditor exemption, noted in Maryland Bank & Trust

Co., 632 F.Supp. at 579-80, and recently reiterated in United

States v. Nicolet, Inc., 712 F.Supp. 1193, 1204 (E.D. Pa. 1989),

suggesting that the exemption was only intended to be applica-

ble in those few jurisdictions where a creditor would “hold

title” through a deed of trust in order to secure obligations due

to it, in contrast to the majority of “lien theory” jurisdictions

where the secured creditor possessed only a lien on property

and except after foreclosure would never possess any “indicia

of ownership.” See generally H.T. Tiffany, The Law of Real Prop-

erty §1380. If the securea creditor exemption is a basis for

“management” and “capability to affect” CERCLA liability

where a secured creditor’s involvement in a facility’s manage-

ment is “sufficiently broad to support the inference that it

(Continued on following page)

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em

9

B. The Eleventh Circuit has created a standard

for CERCLA liability inconsistent with

customary creditors’ rights and loan

documentation.

The Eleventh Circuit’s opinicn claims that it was

rejecting a literal construction of the secured creditor

exemption, urged on it by the government, which would

have imposed liability on any secured creditor that par-

ticipates in any manner in the management of a facility.

The basis for this rejection was their belief that to do so

would “largely eviscerate the exemption Congress

intended to afford to secured creditors.” Fleet, 901 F.2d at

1556.

Based on experience with a wide array of secured

transactions, and with the documentation associated with

those transactions, as well as the loan administration

growing out of those transactions, the College believes

that the Eleventh Circuit’s creation of potential CERCLA

liability by measuring, through inference, a creditor’s

capability to affect hazardous waste disposal decisions,

results in an even greater evisceration of the exemption.

Most secured transactions involve numerous docu-

ments. While the specific instruments will vary from

jurisdiction to jurisdiction, and will also change accord-

ing to the underwriting policies of the lenders involved,

it is not at all unusual for most loan agreements, mort-

gages, lease assignments, deeds of trust and similar

(Continued from previous page)

could affect hazardous waste disposal decision if it so chose,”

does this mean that there could be no such liability in any “lien

theory” state?

10

instruments to authorize the creditor to approve the ten-

ants and leases with tenants, to make further advances or

disbursement of loan proceeds where the creditor deter-

mines that there is a lien claim, tax deficiency or other

situation jeopardizing the creditor’s secured position, or

refusing to advance further loan proceeds if a borrower is

in default of covenants and warranties made at the time

the loan began.

The College believes that such provisions give credi-

tors the opportunity to affect hazardous waste disposal

decisions. For instance, certain types of tenants, such as

dry cleaning establishments, photo finishing labs or phar-

macies can generate solvent and other toxic waste resi-

dues which require disposal. Because of the creditor’s

right to approve tenant selection and lease terms, some

lenders have adopted policies precluding such tenants

from participation in a borrower’s project. In other

instances, the lenders have required strict lease terms,

together with documentation or reports to both the bor-

rower and its creditor demonstrating that such tenants

are properly disposing of the hazardous waste materials

used in their operations. Clearly, to the extent that a

creditor is controlling the presence of such tenants and

demanding the procedures they will follow in order to

assure their compliance with environmental require-

ments, a creditor has the capability to affect hazardous

waste disposal decisions. Indeed, routine loan adminis-

tration decisions, at least indirectly, demonstrate that

secured creditors already participate in the financial man-

agement of their borrowers.

Similarly, when a borrower encounters an unex-

pected contingency on a project, be it a subcontractor cost

11

overrun, an additional tax lien, or a newly discovered

underground tank or old petroleum spill, frequently the

borrower comes back to its lender and seeks authoriza-

tion either to fund such claims from loan proceeds or

seeks a modification or additional advance of the loan to

cover these unexpected contingencies. Traditional loan

documentation gives lenders the right to respond to such

requests, and in so doing, at least according to the Elev-

enth Circuit standard, thereby gives those creditors the

capability to affect hazardous waste disposal decisions.

The College is unaware of any way to document the

number of instances where creditors’ financing documen-

tation creates this capability, or to document the myriad

of occasions when it may be exercised. It is clear to the

College that if participation in “financial management” of

a facility, coupled with a “capacity to influence” treat-

ment of hazardous wastes, is to be the test for secured

creditor CERCLA liability, virtually every secured credi-

tor, through reasonable loan documentation and loan

administration, now is denied the benefits of the secured

creditor exemption. CERCLA’s legislative history regard-

ing this exemption does not indicate that Congress

intended such a result.

Il. THE ELEVENTH CIRCUIT’S DECISION HAS

APPLIED A STANDARD FOR HAZARDOUS

WASTE LIABILITY THAT DIRECTLY

CONFLICTS WITH ESTABLISHED CASE LAW

AND WITH THE REASONABLE EXPECTATIONS

OF LENDERS AND BORROWERS BASED ON

THAT LAW.

The decision below will have a significant impact on

secured lending. The nation’s lenders, including banks

12

and institutions which lend to businesses, were already

extremely wary of potential CERCLA liability, notwith-

standing their resisting foreclosing on non-performing

loans and not participating in the management of the

borrower’s business. Now, not only the nation’s tradi-

tional lenders, but corporate fiduciaries and agencies of

the Federal Government, including the Federal Deposit

Insurance Corporation (“FDIC”) and the Resolution Trust

Corporation (“RTC”) are concerned with the availability

of CERCLA’s secured creditor exemption.

Before the Eleventh Circuit’s decision, as a result of

cases set out in both the district court and Eleventh

Circuit Fleet decisions, there had been a limited, but clear,

construction of the operational liability of a secured cred-

itor. Through decisions such as Maryland Bank and Trust

Co. and Guidice, the statutory exemption language had

been construed to mean that, prior to foreclosure, a

secured creditor would be exempt from CERCLA liability

so long as the secured creditor did not participate in

managerial and operational aspects of a facility.

Mirabile was the first case to suggest this interpreta-

tion, in 1985. There, the Eastern District of Pennsylvania

relieved some secured creditor defendants of CERCLA

liability because their participation in the affairs of a

facility was “limited to participation in financial deci-

sions,” explaining:

participation which is critical [to CERCLA lia-

bility] is participation in operational production,

or waste disposal activities. Mere financial abil-

ity to control waste disposal practices . . . is

not... sufficient for the imposition of liability.

Mirabile, slip op. at 3-4.

13

Prior to Fleet, there was little question that a lender

could provide financial assistance and isolated instances

of management advice without triggering CERCLA lia-

bility, so long as it did not participate in the day-to-day

management either before or after the business shut

down.

The Eleventh Circuit opinion noted cases from the

Eastern District of Pennsylvania (Mirabile), the Southern

District of Texas (Coastal Casting Service v. Aron, No.

H-86-4463 (S.D. Tex. April 8, 1988)), the Northern District

of Illinois (Rockwell International v. I.U. International Corp.,

702 F.Supp. 1384 (N.D. Ill. 1988)), the District of Delaware

(United States v. New Castle County, 727 F.Supp. 854 (D.

Del. 1989)), the Southern District of Georgia (United States

v. Fleet Factors Corp., 724 F.Supp. 955 (S.D. Ga. 1988)), and

the Western District of Pennsylvania (Guidice). All of

these district courts have applied a standard which credi-

tors have come to rely upon in their loan administration

practices. The number of transactions documented

accordingly is immense.

In the five years since the standard was first articu-

lated in Mirabile, lenders have adjusted their loan admin-

istration practices to this requirement. In doing so, they

have sought to avoid becoming involved in the opera-

tional affairs of their borrowers. Lenders had come to

believe that they were complying with what was neces-

sary to avoid CERCLA liability, absent foreclosure and

actual participation in the day-to-day operation of their

borrowers.

But the Eleventh Circuit rejected that test as “too

permissive” and created a new standard by which

14

availability of the exemption is to be judged. The new test

presents secured creditors with even more uncomfortable

dilemmas than they had before Fleet. If they elect to

foreclose on a troubled property, they risk direct liability

for the cleanup, without regard to fault, as well as the

loss of their investment in the property. If they shy away

from this risk, they are transformed into unsecured status

for all intents and purposes and may still be liable for

cleanup costs. Customarily, at the outset of the loan pro-

cess, a creditor considers whether to put in protections,

such as periodic policing of activities, to ensure that a

hazardous waste condition would not arise and, if a

condition did arise, that it would not continue. In light of

Fleet, the mere inclusion of such protections could render

a creditor liable. Understandably, creditors will be hesi-

tant to police the activities of their debtors. By deciding

not to police the activities of their debtors, creditors risk

pollution of their secured interest. Given the decision in

Fleet, creditors will be less likely to opt to work out the

loan, not wishing to risk liability under Fleet by further

involvement with the property. In many cases, taking

steps to foreclose will result in bankruptcy. The effect will

be disastrous on an already troubled national economy.

The central issue in Fleet became whether the lender

could be held liable on any correct reading of the secured

creditor exemption for its action after the borrower

ceased operations but before the lender foreclosed its

interests in the borrower’s inventory and equipment. The

United States Environmental Protection Agency (“EPA”)

argued that Fleet participated in the management of the

facility and was therefore liable as an owner or operator.

EPA alleged, inter alia, that Fleet required the borrower to

15

seek its approval before shipping its goods to customers;

dictated when and to whom the finished goods should be

shipped; controlled access to the facility; and contracted

with the auctioneer to dispose of the fixtures and equip-

ment at the borrower’s facility. EPA also alleged that Fleet

should be liable for conduct during and after the auction

sale, alleging that friable asbestos was knocked loose

from pipes during the auction or when the unsold goods

were subsequently removed. The Eleventh Circuit held

that, if proved, such activities made Fleet liable because

“Fleet’s involvement in the financial management of the

facility was pervasive, if not complete.” Fleet, 901 F.2d at

1559.

Even, arguendo, if Fleet’s involvement in the financial

management of the facility was pervasive, if not com-

plete, Congress never intended the participation in man-

agement aspect of the exemption to be activated unless

there was some nexus between the activities and the

causing or failure to abate the contamination giving rise

to CERCLA liability in the first instance. The mere fact

that a secured creditor seeks to protect its security inter-

est by monitoring, albeit in depth, the activities of its

debtor so as to mitigate its losses when the loan’s perfor-

mance becomes seriously in doubt or non-existent,

should not transform such activities into CERCLA lia-

bility for one who has neither caused or facilitated nor

failed to abate the existence of hazardous substances on a

site involved in a secured credit transaction.

Indeed, the facts in Fleet were such that the court

below could have said that Fleet participated in manage-

ment sufficiently to lose the exemption, without announc-

ing its new radically expansive standard (by which to

16

make such determinations) by dramatically lowering the

threshold of participation in the borrower’s affairs that

may safely be exercised by a lender. The circuit court

could have readily found Fleet potentially liable as a

prior operator during the winding down period by apply-

ing the Mirabile standard. But the court held:

“We . . . specifically reject the formulation of the secured

creditor exemption suggested by the district court in

Mirabile.” Fleet, 901 F.2d at 1558. Mirabile had suggested

that activities, such as determining the order in which

customer orders were to be filled, demanding additional

sales from a facility, supervising operations of a facility,

and assisting in certain manufacturing changes or per-

sonnel reassignments, could bring a secured creditor out-

side the protection otherwise available under the

exemption.

Instead, the court below adjudged Fieet potentially

liable because it “participated in management” suffi-

ciently to lose the exemption. If the participation in man-

agement bears no significant relationship or has no

essential nexus to the activities CERCLA proscribes, and

the Fleet test is couched in such imprecise phraseology as

“inference,” “could” and “if it so chose,” there is literally

no threshold regarding what a secured creditor can

engage in with any degree of safety in order to avail itself

of the congressional exemption.

At least Judge Kozinski, speaking for the Ninth Cir-

cuit in Bergsoe, limited the management activities to

actual rather than ephemeral. At least “actual” connotes a

close nexus between the proscribed activity and the so-

called management that bears on the proscribed activity.

As the Bergsoe court stated, “Merely having the power to

17

get involved in management, but failing to exercise it, is

not enough.” Bergsoe, 910 F.2d at 673 n.3. Judge Kozinski

also held, “What is critical is not what rights the Port had,

but what it did.” Id. at 672. And, importantly, Judge

Kozinski specifically recognized the nexus concept when,

speaking for the Bergsoe panel, he stated:

. .. we hold that a creditor must, as a threshold

matter, exercise actual management authority

before it can be held liable for action or inaction

which results in the discharge of hazardous wastes.

Id. at 673 n.3 (emphasis added).

Certainly, Fleet and Bergsoe are in clear conflict -

conflict that this Court needs to resolve so that ongoing

secured loan transactions may proceed, and without

undue interruption.

The Eleventh Circuit’s opinion creates secured credi-

tor CERCLA liability through an inference based on some

degree of involvement with management of a facility. By

contrast, the Ninth Circuit emphasized actual involve-

ment and held that “there must be some actual manage-

ment of the facility before a secured creditor will”

become liable. Bergsoe, 910 F.2d at 672.

Subparagraph .1(a) of Rule 10 of the Rules of this

Court could not have envisioned a more obvious conflict

between decisions of different United States courts of

appeals. Moreover, pursuant to subparagraph .1(c)

thereof, “ .. . a United States court of appeals has decided

an important question of federal law which has not been,

but should be, settled by this Court...”

+

18

CONCLUSION

For the “special and important reasons” set forth

above, the American College of Real Estate Lawyers

respectfully urges this Court to grant the Petition for Writ

of Certiorari and review the decision of the United States

Court of Appeals for the Eleventh Circuit.

DATED: October 19, 1990.

Respectfully submitted,

THEODORE C. Taus* RicHarp R. Goupserc*

Committee on Amicus Briefs President-Elect

American College of American College of

Real Estate Lawyers Real Estate Lawyers

First Union Center 10275 Little Patuxent Pkwy.

100 South Ashley Drive Col:. abia, Maryland 21044

Suite 2100 (301) 992-6416

Post Office Box 3430

Tampa, Florida 33601 Of Counsel:

(813) 228-8000 Rocer D. ScCHWENKE

Chairman, Environmental

*Counsel of Record for

the Auiieue: Law Committee

Joun S. HowtyFretp

733 15th Street, NW, Rosert M. ZINMAN

Suite 700 Chairman, Committee on

Washington, D.C. 20005 Amicus Briefs

(202) 393-1344 American College of

Real Estate Lawyers