Petition for Writ of Certiorari — American Bankers Ass'n v. Kelley

Supreme Court brief1995

Ask Donna

What actually matters in this document.

Text

Supreme Court, U.S.

(1) FILED

94 752 OCI 2 6 19%

Nop oe tue cies

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1994

AMERICAN BANKERS ASSOCIATION,

AMERICAN COLLEGE OF REAL ESTATE LAWYERS,

AMERICAN COUNCIL OF LIFE INSURANCE,

COMMERCIAL FINANCE ASSOCIATION,

EQUIPMENT LEASING ASSOCIATION OF AMERICA,

Petitioners,

FRANK J. KELLEY, ATTORNEY GENERAL

OF THE STATE OF MICHIGAN, ET AL.,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court of Appeals

For the District of Columbia Circuit

PETITION FOR WRIT OF CERTIORARI

JOHN J. GILL III EDWIN E. HUDDLESON, III *

THOMAS J. GRECO VOLPE, BOSKEY AND LYONS

MICHAEL F. CROTTY 918 16th Street, N.W.

AMERICAN BANKERS Washington, D.C. 20006

ASSOCIATION (202) 736-6580

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 663-5026

Counsel for Petitioner Counsel for Petitioner

American Bankers Association Equipment Leasing Association

*Counsel of Record

[additional counsel listed on inside front cover]

PRESS OF BYRON 8S. ADAMS, WASHINGTON, D.C. 1-800-347-8208

ROGER D. SCHWENKE

CARLTON, FIELDS, WARD,

EMMANUEL, SMITH &

CUTLER

One Harbour Place

P.O. Box 3239

Tampa, Florida 33601

(813) 223-7000

Counsel for Petitioner

American College of Real

Estate Lawyers

MARGARET V. HATHAWAY

LAW OFFICES OF

MARGARET V. HATHAWAY

5322 Forty-first Street, N.W.

Washington, D.C. 20015

(202) 244-8160

Counsel for Petitioner

American Council of Life

Insurance

PHILLIP E. STANO

ROBERT S. MCCONNAUGHEY

DAVID LEIFER

AMERICAN COUNCIL OF LIFE

INSURANCE

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 624-2183

Counsel for Petitioner

American Council of Life

Insurance

DAVID T. BUENTE, JR.

CARTER G. PHILLIPS

SIDLEY & AUSTIN

1722 Eye Street, N.W.

Washington, D.C. 20006

(202) 736-8167

Counsel for Petitioner

Commercial Finance

Association

QUESTIONS PRESENTED

This case involves the validity of a rule issued by the

EPA to define the scope of liability of secured creditors and

provide them with a safe harbor under the Comprehensive

Environmental Response, Compensation and Liability Act

(CERCLA or Superfund), 42 U.S.C. § 9601 ef seg. The

questions presented are:

1. Whether the court of appeals erred in striking down

the EPA Rule, and erred in nullifying the rulemaking

authority given to EPA by the CERCLA statute (42 U.S.C.

§§ 9615, 9605, 9613), by ruling that EPA is powerless to

issue rules affecting CERCLA “liability” issues (as opposed

to "remedy" issues).

2. Whether the court of appeals erred in severely

restricting the scope of Chevron vy. Natural Resources

Defense Council, 467 U.S. 837 (1984), based on an

expansive reading of Adams Fruit v. Barrett, 494 U.S. 638

(1990).

RULE 29.1 LIST

The opinions of the court of appeals contain the names

of all the parties.* See Kelley v, EPA, 15 F.3d 1100 (D.C.

Cir. 1994) (App.A, infra, la- 25a), on rehearing, 25 F.3d

1088 (D.C. Cir. 1994) (App.B, infra, 26a- 35a).

*/ To comply with Supreme Court Rule 29.1, petitioners

state that each of them is a national nonprofit organization

that has issued no publicly owned securities. Nor does any

of the petitioners have any parent companies, or subsidiaries,

or affiliates that have issued publicly owned securities.

iii

TABLE OF CONTENTS

Page

erg ar ar a an re i

PE A 6 ee eS ake ee 4 ae 6 ws li

Ge Si ines bb OV bee es Vv

ile Coa 6 os 4 os ks 6 He wae 2

NS a ai eid a aw ae ie Wh w-A w 0 os 2 4 8’ e 8 2

Statutory and Regulatory Provisions Involved ...... 2

I 0d a tee G5 bk baw Os oo oe ee 2

pe | 3

B. EPA's Lender Liability Rule ............ 4

©, Tee Proceedings Below .. 0. cece 6

Reasons for Granting the Petition .............. 8

I. The Validity of EPA’s Lender Liability Rule,

and the Scope of EPA’s Administrative Power

under CERCLA, are Issues of National Impor-

tance that Should be Resolved by this Court ... 9

Il. The Overbroad Interpretation of Adams Fruit

y. Barrett, 494 U.S. 638 (1990), By The Court

of Appeals, Seriously Undermines Chevron .. 13

Page

Appendix A: Opinion of the Court of Appeals ..... la

Appendix B: Supplemental Opinion of the Court of

OED i. oo e510 e Cae ERS Ee 0085 26a

Appendix C: Court of Appeals Judgment ........ 36a

Appendix D: orders denying rehearing.......... 37a

Appendix E: statutory and regulatory provisions

IIE 0 kb he 06 4a ee ie eee 39a

TABLE OF AUTHORITIES

Page

CASES:

Adams Fruit v. Barrett, 494 U.S. 638 (1990) ... passim

Chevron v. Natural Resources Defense Council,

467 U.S. 837 (1984) .. 2... eee eee eeeess passim

Cook v. State of Rhode Island Dept. of Mental Health,

10 F.3d 17 (1st Cir. 1993) ..... 2. ee ee eees 15

Dico v. Diamond, __ F.3d (8th Cir.

September 12, 1994) ......- eee eerececes 13

Leonard v. United Air Lines, 972 F.2d 155 (7th Cir.

Berane ap ar yw arrange a 15

Martin v. OSHRC, 499 U.S. 144 (1991) ...... 16, 17

Meadow Green-Wildcat Corp. v. Hathaway,

936 F.2d 601 (1st Cir. 1991) .......-2 ee eee 17

Mourning v. Family Publications Serv., Inc.,

Pei MF) ys Eh a a ee 16

NAACP v. American Family Mut.Ins., 978 F.2d 287

(For Clg: 1992) cc cece ewe seeens 15

Office of Professional Employees Int’! Union v. FDIC,

962 F.2d 63 (D.C. Cir. 1992) .....-- eee ees 13

Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988) 15

Page

United States v. Fleet Factors, 901 F.2d 1550

(11th Cir. 1990), cert. denied, 498 U.S. 1046

CRED bk ake 85 CNRS Oe Bree 0s vee

United States v. Maryland Bank & Trust Co.,

Goa P.Bu. Sis GREG. THR eee ccc wccrces 5

Wagner Seed Co. v. Bush, 946 F.2d 918 (D.C. Cir.

1991), cert. denied, 112 S. Ct. 1584 (1992) ... 3,13

Waterville Industries v. Finance Auth. of Maine,

oof Fo gs ie | ea ll

STATUTES AND REGULATIONS:

Clean Air Act, 42 U.S.C. § 7601(a), § 7604 ...... 14

Clean Water Act, 33 U.S.C. § 1361, 1365 ...... 14

Comprehensive Environmental Response, Compensation,

and Liability Act, 42 U.S.C. § 9601 ef seq. . . . passim

Emergency Planning and Community Right-to-Know Act,

£2 U.S.C. § 13066, § L200 2 oc cee ee bes 14

EPA Rule on “Lender Liability under CERCLA,"

57 Fed.Reg. 18,344 (April 29, 1992),

te FD 8) eee ss ee ee 5

Marine Protection Research and Sanctuaries Act,

33 U.S.A. § IGE), FPS coe ci ck ee ates 14

Noise Control Act, 42 U.S.C. § 4905b, § 4911 .... 14

Resource Conservation and Recovery Act,

42 U.S.C. § 6912(a)(1), § 6972... 6. e ee eee 14

Safe Drinking Water Act, 42 U.S.C. § 300j-8,

ye re rey ee oe 14

MISCELLANEOUS:

Davis & Pierce, Administrative Law Treatise

(3d ed. 1994) $3.5-§3.6 ...- sere re reres 9

Dyk & Schenck, Exceptions to Chevron,

18 Admin. Law News 12 (Winter 1993) ......-.- 14

Hearing Before the Subcommittee on Policy Research

and Insurance of the House Comm. on Banking,

Finance and Urban Affairs, 102d Cong., 1st Sess.

C1GOT) nc ccccesccccesccscereecosees il

Hearings before Senate Banking Committee on 5.2827,

101st Cong., 2d Sess. July 19, ee 10

H.R. Rep. 103-582, pt 2 (1994) ..-----eeeeeeee 7

Merrill, Judicial Deference to Executive Precedent,

101 Yale L.J. 969 (1992) .....---seeeee 9, 14

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

No. 94-

AMERICAN BANKERS ASSOCIATION,

AMERICAN COLLEGE OF REAL ESTATE LAWYERS,

AMERICAN COUNCIL OF LIFE INSURANCE,

COMMERCIAL FINANCE ASSOCIATION,

EQUIPMENT LEASING ASSOCIATION OF AMERICA,

Petitioners,

Vv .

FRANK J. KELLEY, ATTORNEY GENERAL

OF THE STATE OF MICHIGAN, ET AL.,

Respondents.

Petition for a Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

The American Bankers Association, the American

College of Real Estate Lawyers, the American Council of

Life Insurance, the Commercial Finance Association, and the

Equipment Leasing Association of America petition for a

writ of certiorari to the United States Court of Appeals for

the District of Columbia Circuit in this case.

OPINIONS BELOW

The opinions of the court of appeals are reported at

15 F.3d 1100 and 25 F.3d 1088 (App.A and B, infra, 1a-

35a).

JURISDICTION

The judgment of the court of appeals (App.C, infra,

p. 36a) was entered on July 28, 1994. A timely petition for

rehearing with a suggestion for rehearing en banc was denied

on June 14, 1994 (App.D, infra, pp. 37a- 38a). On August

26, 1994 and September 8, 1994, the Chief Justice extended

the time within which to file a petition for a writ of

certiorari to and including October 27, 1994. The

jurisdiction of this Court is invoked under 28 U.S.C. section

1254(1).

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

The Comprehensive Environmental Response,

Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.,

and the EPA Rule on “Lender Liability under CERCLA,” 40

C.F.R. §300.1100, are set forth in relevant part in App.E,

infra, 39a-Sla.

STATEMENT

This case involves the validity of EPA’s legislative

rule defining the scope of liability of secured creditors under

the Comprehensive Environmental Response, Compensation

and Liability Act (CERCLA or Superfund), 42 U.S.C. §

9601 et seq.

A. Statutory Background

Congress enacted the Superfund statute (CERCLA)

because of widespread concern over the environmental and

public health effects of improper disposal of hazardous

substances. Under CERCLA, EPA has an array of

administrative powers to address the release or threatened

release of hazardous substances into the environment. The

statute delegates to EPA’ the comprehensive rulemaking

powers in CERCLA § 115, which authorizes EPA "to

promulgate any rules necessary to carry out the provisions of

this subchapter." 42 U.S.C. § 9615. Similarly, in Section

105 of CERCLA, EPA is granted authority to promulgate

National Contingency Plan (NCP) rules “to reflect and

effectuate the responsibilities and powers created" by

CERCLA. 42 U.S.C. § 9605(a). The statute states that, if

an EPA rule is not attacked immediately by suit in the D.C.

Circuit, it will bind private parties and cannot be attacked

later by a private party or anyone else “[iJn any civil...

proceeding . . . to obtain damages or recovery of response

costs." 42 U.S.C. § 9613(a).

When the United States, a state or a private party

incurs cleanup costs under CERCLA, such costs can be

recovered from the classes of liable parties defined in section

107(a) of CERCLA. “Owners or operators” of hazardous

substance facilities are one class of potentially liable persons.

1 The statute generally vests authority in the President

in the first instance. The President, in turn, has delegated

all of the CERCLA authority pertinent in this case to EPA.

See Executive Order 12,850 (January 23, 1987) (delegation),

52 Fed. Reg. 2923-29; Wagner Seed Co. v. Bush, 946 F.2d

918, 920 (D.C. Cir. 1991), cert. denied, 112 S. Ct. 1584

(1992).

42 U.S.C. § 9607(a)(1) and (2). The statute narrows the

term “owner or operator” by providing:

Such term does 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.

42 U.S.C. § 9601(20)(A). This Statutory language is

referred to as CERCLA’s "secured creditor exemption.”

B. EPA’s Lender Liability Rule

Over the years since CERCLA’s enactment in 1980,

commercial lenders experienced difficulty in steering clear

of CERCLA liability and in deciphering what activities they

could safely conduct under CERCLA’s “secured creditor

exemption,” 42 U.S.C. § 9601(20)(A). As the court below

put it (App.4a-Sa):

Conflicting judicial interpretations as to the

scope of this secured creditor exemption

opened the possibility that lenders would be

held liable for the cost of cleaning up

contaminated property that they hold merely

as collateral. Lenders lacked clear guidance

as to the extent to which they could involve

themselves in the affairs of a facility without

incurring liability and also as to whether they

would forfeit the exemption by exercising

their right of foreclosure, which could be

thought to convert their “indicia of

ownership”-- the security interest-- into actual

ownership.

Lenders were threatened with liability for the full cost of

cleanup at CERCLA sites, even though they were innocent

of causing any contamination, under CERCLA’s harsh.

regime of strict, joint and several liability. See, e.g., United

States v. Maryland Bank & Trust Co., 632 F. Supp. 573

(D.Md. 1986). One court suggested that a lender’s mere

capacity to affect hazardous waste disposal might void the

"secured creditor exemption” and trigger CERCLA liability.

United States v. Fleet Factors, 901 F.2d 1550, 1558 (11th

Cir. 1990), cert. denied, 498 U.S. 1046 (1991).

To “fill in the gaps” and ambiguities that actual

experience had revealed in CERCLA’s “secured creditor

exemption,” EPA issued its Rule on “Lender Liability Under

CERCLA." See 57 Fed. Reg. 18,344 at 18,358 (April 29,

1992). Clarifying the meaning of the statute according to its

view of CERCLA’s policies, EPA rejected the troublesome

language in Fleet Factors and gave “bright line” tests to

“specify the range of activities that may be undertaken” by

secured lenders without incurring CERCLA liability. 56

Fed.Reg. 28,798 to 28,799 (June 13, 1991). EPA’s Rule

provides that: (1) Before foreclosure, a non-polluting lender

is subject to CERCLA liability only if it actually exercises

decisionmaking control over the borrower's environmental

compliance, or over all or substantially all of the operational

aspects of the enterprise, 40 C.F.R. § 300.1100(c)(1)

(1992); and (2) after foreclosing, a non-polluting lender

remains exempi from CERCLA liability so long as it takes

steps to divest itself of the property in a prompt and

commercially reasonable manner, 40 C.F.R. §

300. 1100(d)(1) (1992). EPA intended that these regulations

would bind all parties in CERCLA litigation, regardless of

whether the United States was a party to the suit. 57

Fed.Reg. at 18,363 (April 29, 1992).

C. The Proceedings Below

1. The court of appeals, on petitions for review,

struck down the EPA Rule. Two judges ruled that CERCLA

did not invest the EPA with the statutory authority to issue

substantive rules about lender liability, which might cut off

the rights of private parties to sue and recover from lenders.

Kelley v. EPA, 15 F.3d 1100 (D.C. Cir. 1994) (App. la-16a).

The structure of CERCLA, the majority found,

limited EPA’s rulemaking authority under 42 U.S.C. section

9615. Construing CERCLA section 106’s provision for

judicial review of EPA’s case-by-case rulings on CERCLA

reimbursement rights, the majority found implicit in the

statute a sharp distinction between CERCLA "liability" and

CERCLA “remedies.” App.9a- 13a. The panel credited

EPA with rulemaking authority only to define "the nature of

actions parties must take in response to contamination-- not

their ultimate liability for the contamination set forth in

section 107 of CERCLA." App.9a.

This view was buttressed, the majority thought, by

the right of private parties to test CERCLA liability

questions directly in federal court "without any government

involvement." App.12a. “Under these circumstances, it

cannot be argued that Congress intended EPA, one of many

potential plaintiffs, to have authority to, by regulation, define

liability for a class of potential defendants." Id. Citing

Adams Fruit v. Barrett, 494 U.S. 638 (1990), the panel

concluded that "Congress, by providing for private rights of

action under section 107, has designated the courts and not

EPA as the adjudicator of the scope of CERCLA liability."

App.13a. The court struck down the EPA rule and vacated

it, finding no basis for it as either a “substantive” or

"interpretative" rule. App.14a-16a.

Chief Judge Mikva dissented, on the ground that

EPA’s Rule should be accorded Chevron deference.

App.17a-25a. CERCLA’s provisions for court review of

EPA adjudications of CERCLA section 106 reimbursement

rights, he found, merely preserve traditional burdens of

proof for issues of causation. App.20a-24a. With respect

to Adams Fruit, Chief Judge Mikva found private rights of

action relevant only where an agency purports to interpret a

statutory provision that it does not administer “in any

respect.” That situation was not presented here, because

EPA often construes the scope of CERCLA “owner or

operator” liability (as well as CERCLA’s “secured creditor

exemption") in the course of its day-to-day administration of

the statute. App.24a-25a.

2. The court of appeals denied rehearing, again by

a2 to 1 vote. Kelley v. EPA, 25 F.3d 1088 (D.C. Cir.

1994) (App. 26a-35a). Overruling the objections of EPA and

petitioners (who were intervenors below), the majority stated

that EPA’s Rule was not entitled to Chevron deference,

because the CERCLA statute treats EPA “only as 2

prosecutor without specific authority to issue regulations

bearing on the questions prosecuted." App.34a. Chief

Judge Mikva again dissented.’

2 CERCLA reauthorization bills before the Congress

would have overruled the court of appeals’ decision. See

H.R. 3800, 103d Cong. 2d Sess. p.61 (1994); H.R. 4916,

103d Cong. 2d Sess. pp.98-99 (1994); S.1834, 103d Cong.,

2d Sess. pp.72-73 (1994); H.R. Rep. 103-582, pt 2 at pp.25,

100 (1994). Those bills recently died, notwithstanding

broad-based support for Superfund reform. See "Superfund

Reform Bites the Dust,” Washington Post p.A15 (Thursday,

October 6, 1994).

REASONS FOR GRANTING THE WRIT

This case raises issues of exceptional importance for

the financial community of the United States, for EPA’s

basic power to issue rules under CERCLA, and for federal

agency rulemaking power and court review of agency rules

under Chevron v. Natural Resources Defense Council, 467

U.S. 837 (1984).

Without the EPA Rule, the court of appeals majority

acknowledged, secured lenders “face potentially staggering

liability because of the generality of the [CERCLA] statutory

language and the prospect of Private suits” seeking to impose

CERCLA liability on lenders who are innocent of causing

contamination. Kelley v. EPA, 15 F.3d 1100, 1109 (D.C.

Cir. 1994) (App.15a). The impact is immediate, severe and

adverse on many financial transactions throughout the

country.

The court of appeals’ decision also hamstrings EPA’s

rulemaking authority under CERCLA by holding that EPA

is powerless to issue rules clarifying any CERCLA issue that

affects CERCLA "liability" (as opposed to “remedy").

Viewing CERCLA as a statute under which only the courts

(not administering agencies) are empowered to define

"liability," the court of appeals majority nullified CERCLA’s

explicit statutory grant of rulemaking authority to EPA (42

U.S.C. § 9615), swept aside the CERCLA statutory provis-

ion that valid EPA rules are binding in private party litiga-

tion (42 U.S.C. § 9613), and then manufactured its “liabili-

ty” vs. “remedy” distinction and engrafted it onto the clear

words of the CERCLA statute granting EPA wide

rulemaking authority. This strained ruling-- overreading

Adams Fruit v. Barrett, 494 U.S. 638 (1990), to nullify

agency rulemaking power on “liability” issues in a dual

government/private party enforcement scheme-- graphically

illustrates the need for this Court to clarify the standards of

Chevron and the relationship between Chevron and Adams

Fruit. See 1 Davis & Pierce, Administrative Law Treatise §

3.5-83.6 (3d ed. 1994); Merrill, Judicial Deference to

Executive Precedent, 101 Yale L.J. 969 (1992).

I. THe VALIDITY OF EPA’S’ LENDER

LIABILITY RULE, AND THE SCOPE OF EPA’S

ADMINISTRATIVE POWER UNDER CERCLA,

ARE ISSUES OF NATIONAL IMPORTANCE

THAT SHOULD BE RESOLVED By THIS

COURT.

A. The validity of the EPA Rule presents an issue of

national importance that should be resolved by this Court.

Without the clear “bright line" tests in the EPA Rule, the

earlier confusion in the law (which prompted EPA to act in

the first place) remains. See App.15a. The threat of catas-

trophic CERCLA liability continues to deter secured lenders

from making beneficial loans, it distorts prudent lending

practices upon borrower default, and it chills sound environ-

mentally protective activities.

The importance of clear, predictable "safe harbor"

protections from CERCLA liability was stressed repeatedly

by lenders during EPA’s rulemaking proceedings. Many

areas in the country contain hazardous substances. Without

the protection of the EPA Rule, lenders often refuse to make

loans to some types of borrowers and businesses, as well as

loans secured by some types of properties.? They generally

3 According to a 1990 poll by the American Bankers

Association, canvassing banks with assets of $250 million or

less, "43 percent of respondents have already stopped

avoid commercial real estate lending at all absent expensive

environmental inspections and testing. Moreover, when

borrowers default, lenders often abandon collateral rather

than risk incurring cleanup liability as a CERCLA "owner"

or “operator” by foreclosing. Without the EPA Rule,

lenders will continue to cut back on lending to small

businesses, where the cost of an environmental inspection

often outweighs the value of the loan itself. These

marketplace reactions create a “credit crunch" for some

small businesses and other industries, take properties out of

private circulation, and increase the number of “orphan”

sites that remain unremediated because no financing is avail-

able. :

Testimony before Congress by lenders explained their

concerns with Fleet Factors. The very act of making a loan

enables a lender to influence a borrower’s handling of

hazardous substances. In light of the uncertain court cases,

a lender can best avoid liability by not making loans,

especially to borrowers in higher risk businesses and

locations; not foreclosing on a defaulted loan; not attempting

to salvage a loan in default; not having loan covenants that

making loans altogether to certain types of small businesses,

those that [are] most frequently associated with

environmental problems, and another 11 percent plan to do

so shortly.” Hearings before Senate Banking Committee on

5.2827 Tr.65-66 (July 19, 1990) (statement of Charles M.

Mitschow).

* See surveys of effect of CERCLA on banking and

lending activities, Joint Brief of Intervenors in Kelley v.

EPA, Appendix I (D.C.Cir. Nos.92-1312, 92-1314)

(Aug.1993), and in INDEPENDENT BANKER 28 (Nov.

1991).

require the borrower to handle hazardous substances

responsibly; and certainly not enforcing such covenants.

While enabling a lender to avoid liability, such practices are

imprudent: They impose unnecessary losses on the financial

community, raise the cost of credit and preclude lenders

from engaging in environmentally protective activities.

Hearing Before the Subcommittee on Policy Research and

Insurance of the House Comm. on Banking, Finance and

Urban Affairs, 102d Cong., 1st Sess. 388, 396-397 (1991)

(statement of spokesmen for American Bar Association

Section of Real Property, Probate and Trust Law).

The old Fleet Factors decision has continued viability

in the Eleventh Circuit, spawning fear there and elsewhere

about the status of secured creditors. Other courts of appeals

(without regard to the EPA Rule) take a different view of

CERCLA’s statutory “secured creditor exemption.” See,

e.g., Waterville Industries v. Finance Auth. of Maine, 984

F.2d 549, 553 (1st Cir. 1993). We believe that the statute,

properly construed, should broadly protect ordinary lending

practices. But without the EPA Rule, it will require many

years for the various federal appellate courts to rule on the

issue, and even when they do so, they may never provide the

clear, uniform “bright line" guidance of the EPA Rule.

This Court should reinstate the EPA Rule to ensure

that CERCLA’s “secured creditor exemption” is given a

clear and uniform meaning in different jurisdictions across

the Nation.

B. EPA’s rulemaking authority under CERCLA is

seriously eroded by the court of appeals’ erroneous ruling.

Under the lower court’s theory, EPA is powerless to issue

rules clarifying any issue that affects CERCLA “liability.”

No court has ever hamstrung an agency in this fashion when

it has been charged with overall responsibility to enforce the

law.

The structure and language of CERCLA are at war

with the court of appeals’ decision striking down the EPA

Rule. The broad agency rulemaking authority conferred by

42 U.S.C. section 9615 is not limited by the statutory

language to selection of a proper “remedy” as opposed to

CERCLA "liability" issues. Instead, the majority read that

limitation into the “structure” of CERCLA based on an

expansive reading of Adams Fruit v. Barrett, 494 U.S. 638

(1990).° But unlike the situation in Adams Fruit, there is no

jurisdictional barrier to EPA interpreting CERCLA "liabil-

ity” issues. EPA must interpret CERCLA’s §107 liability

sections every day, as part of its enforcement

responsibilities. See App.25a. It clearly has jurisdiction to

do so.

The court of appeals reasoned that CERCLA leaves

private parties free to test CERCLA liability issues directly

in court “independent of EPA’s institutional view"

(App. 15a). But CERCLA’s provisions for judicial review, in

42 U.S.C. section 9613(a), show that private party CERCLA

litigation must be conducted within the limits set by EPA

rules. The statute states that if an EPA rule is not attacked

* This Court in Adams Fruit considered a federal agency

regulation interpreting a private statutory right of action for

migrant farm workers injured by an employer’s failure to

comply with the law. But the agency had no role whatsoever

in enforcing this statutory section. The Court held that

Congress made the judiciary the sole adjudicator of these

private rights of action. 494 U.S. at 649. The federal agency

had simply attempted to “bootstrap itself into an area in

which it has no jurisdiction.” Jd. at 650.

immediately by suit in the D.C. Circuit, it is binding on

private parties and cannot be attacked later by a private party

or anyone else "in any civil . . . proceeding . . . to obtain

damages or recovery of response costs." 42 U. S.C. §

9613(a). The statute clearly contemplates-- contrary to the

court of appeals’ ruling-- that EPA rules will have binding

effect in private party litigation on CERCLA liability issues.

Il. THE OVERBROAD INTERPRETATION OF

ADAMS FRuiT V. BARRETT, 494 U.S. 638

(1994), BY THE COURT OF APPEALS,

SERIOUSLY UNDERMINES CHEVRON.

The overbroad reading of Adams Fruit, by the court

below, raises an important and recurring question about the

scope of this Court’s decision in Chevron v. Natural

Resources Defense Council, 467 U.S. 837 (1984). The lower

court’s ruling was recently relied upon by the Eighth Circuit

to create an explicit conflict in the circuits about the proper

relationship between Adams Fruit and Chevron. Compare

Dico v. Diamond, __ F.3d ___ (8th Cir. Sept.12, 1994)

with Wagner Seed Co. v. Bush, 946 F.2d 918 (D.C. Cir.

1991), cert. denied, 112 S. Ct. 1584 (1992). The origin of

the conflict is the decision below, which should be reviewed

by this Court to clarify the scope and meaning of Chevron.

A. Adams Fruit and Chevron. When issued, Adams

Fruit v. Barrett, 494 U.S. 638 (1990), seemed to represent

a very narrow exception to Chevron and its basic rule of

judicial deference to agency rulemaking under a broad

statutory grant of authority: Agencies cannot validly issue

rules interpreting statutory provisions that they lack juris-

diction to address at all. Cf Office of Professional Employees

Int'l v. FDIC, 962 F.2d 63, 65 (D.C. Cir. 1992) (R. B.

Ginsburg, J.).° The court below extrapolated Adams Fruit

far beyond this, to suggest that Chevron deference disappears

whenever an agency issues a rule in the context of a dual

government/private enforcement scheme. The sweeping

implications of this erroneous ruling are startling.

Were the lower court’s reasoning to stand, it would

threaten EPA’s rulemaking authority not only for CERCLA

but for all environmental statutes, which commonly provide

both for “citizen suits" or other private rights of action, and

for comprehensive EPA legislative rulemaking authority.’

Moreover, there are numerous statutory schemes in which a

federal agency’s administration and enforcement of a statute

is supplemented with private rights of action, but these

agencies nonetheless have been accorded Chevron deference

* The commentators similarly view Adams Fruit as a

narrow exception to Chevron. See Dyk & Schenck,

Exceptions to Chevron, 18 Admin.Law News 12, 13 (Winter

1993); Merrill, Judicial Deference, 101 Yale L.J. 969, 987

(1992).

7 See, e.g., Clean Water Act, 33 U.S.C. § 1361 (EPA

rulemaking), § 1365 (citizen suit); Marine Protection

Research and Sanctuaries Act, 33 U.S.C. § 1415(g) (citizen

suit), § 1418 (EPA rulemaking); Safe Drinking Water Act,

42 U.S.C. § 300j-8 (citizen suit), § 300j-9(a) (EPA

rulemaking); Noise Control Act, 42 U.S.C. § 4905b (EPA

rulemaking), § 4911 (citizen suit); Resource Conservation

and Recovery Act, 42 U.S.C. § 6912(a)(1) (EPA

rulemaking), § 6972 (citizen suit); Clean Air Act, 42 U.S.C.

§ 7601(a) (EPA rulemaking), § 7604 (citizen suit);

Emergency Planning and Community Right-to-Know Act, 42

U.S.C. § 11046 (citizen/government suits), § 11048 (EPA

rulemaking).

in their interpretations of statutory terms giving rise to

liability.*

The straightforward principle of administrative law

that should control here is that "Congress created the private

right of action to facilitate enforcement of CERCLA’s

statutory scheme within the parameters of lender liability

which the EPA, as the administering agency, would define.”

App.24a (Mikva, C.J., dissenting). See 42 U.S.C. §

9613(a) (EPA rules are binding in later private party

CERCLA litigation).

B. Text and Structure of the CERCLA Statute.

The court below misconstrued the language and

structure of CERCLA to reflect its overreading of Adams

Fruit.

1. Text. The court of appeals nullified CERCLA’s

* See, e.g., Cook v. State of Rhode Island Department of

Mental Health, Retardation and Hospitals, 10 F.2d 17, 22

(1st Cir. 1993) (under parallel enforcement scheme, great

weight accorded EEOC regulations defining what constitutes

"perceived disability” for purposes of claim under the

Rehabilitation Act); NAACP v. American Family Mut. Ins.

Co., 978 F.2d 287, 300 (7th Cir. 1992) (court accords

Chevron deference to agency’s interpretation of Fair Housing

Act, where Act contained "a provision for administrative

enforcement paralleling judicial enforcement" by private

parties); Leonard v. United Air Lines, 972 F.2d 155, 158

(7th Cir. 1992) (deference to agency interpretation of

Veterans Act); Polaroid Corp. v. Disney, 862 F.2d 987,

994-95 (3d Cir. 1988) (deference to SEC interpretation of

the Securities and Exchange Act).

general statutory grant of rulemaking authority to the

President (and his delegate, EPA)

to promulgate any regulations necessary to

carry out the provisions of this subchapter [42

U.S.C. § 9615}

The court below seems to require that a statutory delegation

of agency rulemaking authority must specifically mention

"liability," before the agency will be deemed to have

rulemaking authority on “liability” issues. But this conflicts

with this Court’s decisions, which construe general statutory

grants of rulemaking authority broadly, to give wide scope

to agency legislative rulemaking. See, e.g., Mourning v.

Family Publications Service, Inc., 411 U.S. 356, 369-370

(1973).

Statutory Structure: EPA’s Role as

"Prosecutor." The opinions below repeatedly discount

EPA’s Rule on the ground that EPA is a CERCLA “prose-

cutor." See, e.g., App.10a; App.34a. But this ignores the

specific CERCLA statutory provisions giving EPA legislative

rulemaking authority. 42 U.S.C. § 9615, § 9605. Nearly all

cases in which an agency’s views are entitled to Chevron

deference involve statutes allowing the agency to act, in

some situations, as a "prosecutor." See, e.g., Martin v.

OSHRC, 499 U.S. 144, 157 (1991).

Where an agency issues a legislative rule, it is

drawing on agency policy views about the statute in a way

that is unlikely to be “biased."? In these circumstances,

* One of the important differences between an agency

“prosecution” (on the one hand) and an agency legislative

rule like the EPA Rule here (on the other hand) is that the

ii lll

Chevron deference is appropriate notwithstanding the fact

that the agency also might have authority to act as a civil

“prosecutor” in other cases under the same statute. See,

e.g., Martin v. OSHRC, 499 U.S. 144, 157 (1991). This

Court should clarify the law here, to reaffirm the validity of

agency rulemaking power under broad statutory grants of

authority, where the agency also sometimes acts as a civil

“prosecutor.”

The overbroad reading of Adams Fruit by the court

of appeals below squarely presents an important and

recurring question about the proper relationship between

Adams Fruit and Chevron. The profound importance of the

EPA Rule to commercial lending practices that are vital to

the Nation’s economy, and to our Nation’s continuing efforts

to clean up hazardous wastes, makes review by this Court

imperative.

risk of “prosecutorial” bias or agency self-interest is Jess for

a true legislative rule that is applicable across-the-board to

many different cases including cases in which the agency

itself is not a party. Contrast Meadow Green-Wildcat v.

Hathaway, 936 F.2d 601, 604-605 (1st Cir. 1991) (Breyer,

J.) (court denies Chevron deference to agency interpretation

of contract to which it was a party and permits that have the

same effect).

CONCLUSION

The petitior for a writ of certiorari should be

granted.

Respectfully submitted,

Edwin E. Huddleson, III *

Volpe, Boskey and Lyons

918 16th Street, N.W.

Washington, D.C. 20006

202) 737-6580

Counsel for Petitioner

Equipment Leasing Association

* Counsel of Record

John J. Gill HI Roger D. Schwenke

Thomas J. Greco Carlton, Fields, Ward,

Michael F. Crotty Emmanuel, Smith & Cutler

American Bankers One Harbour Place

Association P.O. Box 3239

1120 Connecticut Ave. N.W. Tampa, Florida 33601

Washington, D.C. 20036 (813) 223-7000

(202) 663-5026

Counsel for Petitioner Counsel for Petitioner

American Bankers American College of Real

Association Estate Lawyers

Margaret V. Hathaway

Law Offices of David T. Buente, Jr.

Margaret V. Hathaway Carter G. Phillips

5322 Forty-first St., N.W. Sidley & Austin

Washington, D.C. 20015 1722 Eye Street, N.W.

(202) 244-8160 Washington, D.C. 20006

(202) 736-8167

Counsel for Petitioner

American Council Counsel for Petitioner

of Life Insurance Commercial Finance Association

Phillip E. Stano

Robert S. McConnaughey

David Leifer

American Council of

Life Insurance

1001 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 624-2183

Counsel for Petitioner

American Council

of Life Insurance

October 1994.

APPENDIX

EDITOR'S NOTE

THE FOLLOWING PAGES WERE POOR HARD COPY

AT THE TIME OF FILMING. IF AND WHEN A

BETTER COPY CAN BE OBTAINED, A NEW FICHE

WILL BE ISSUED.

APPENDIX A

Notice: This opinion is subject to formal revision before publication in

the Federal Reporter or U.S.App.D.C. Reports. Users are requested to

. notify the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

Gnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 28, 1993 Decided February 4, 1994

No. 92-1312

FRANK J. KELLEY, ATTORNEY GENERAL OF THE STATE OF MICHIGAN,

FRANK J. KELLEY, EX REL STATE OF MICHIGAN,

MICHIGAN DEPARTMENT OF NaTURAL RESOURCES,

Frank J. KELLEY,

PETITIONERS

ENVIRONMENTAL PROTECTION AGENCY,

Wituiam K. REeItiy, ADMINISTRATOR,

RESPONDENTS

AMERICAN BANKERS ASSOCIATION,

EQuIPMENT LEASING ASSOCIATION OF AMERICA,

ComMMERCIAL FINANCE ASSOCIATION,

AMERICAN Councit or Lire INSURANCE,

AMERICAN COLLEGE oF Rea, Estate Lawyers,

INTERVENORS

Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

No. 92-1314

CHEMICAL MANUFACTURERS ASSOCIATION,

PETITIONER

Vv.

ENVIRONMENTAL PROTECTION AGENCY,

RESPONDENT

AMERICAN BANKERS ASSOCIATION,

EQuipMENT LEASING ASSOCIATION OF AMERICA,

COMMERCIAL FINANCE ASSOCIATION,

AMERICAN CounciL OF LiFe INSURANCE,

AMERICAN CoLLece OF Rear Estate Lawyers,

INTERVENORS

Petition for Review of Orders of the

Environmental Protection Agency

Jeremy M. Firestone, Assistant Attorney General, State of

Michigan, argued the cause for petitioners Michigan Attorney

General Frank J. Kelley, the State of Michigan and the

Michigan Department of Natural Resources in No. 92-1312.

With him on the briefs was Thomas L. Casey, Solicitor

General, State of Michigan.

Theodore L. Garrett argued the cause for petitioner Chemi-

cal Manufacturers Association in No. 92-1314. With him on

the briefs were David F. Zoll and Dell E. Perelman.

Bradley M. Campbell, Attorney, United States Department

of Justice, argued the cause for respondents. With him on

the brief was Earl C. Salo, Counsel, United States Environ-

mental Protection Agency. Michael A. McCord, Attorney,

United States Department of Justice, entered an appearance

for respondents.

On the joint brief for intervenors American Bankers Asso-

ciation, et al., and amicus curiae Mortgage Bankers Associa-

tion of America were John J. Gill, Thomas J. Greco, Michael

F. Crotty, Roger D. Schwenke, Margaret V. Hathaway, How-

ard L. Feinstein, Robert S. McConnaughey, Samuel 1. Gut-

ter, David T. Buente, Jr, Edwin EF. Huddleson, III, and

William E. Cumberland. Richard R. Goldberg entered an

appearance for intervenor American College of Real Estate

Lawyers in Nos. 92-1312 and 92-1314.

Before: Mixva, Chief Judge, SitBeRMAN and HENDERSON,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Sitperman.

Dissenting opinion filed by Chief Judge Mixva.*

SILBERMAN, Circuit Judge: Petitioners challenge an EPA

regulation limiting lender liability under CERCLA. We hold

that EPA lacks statutory authority to restrict by regulation

private rights of action arising under the statute and there-

fore grant the petition for review.

Congress enacted the Comprehensive Environmental Re-

sponse, Compensation and Liability Act (CERCLA), 42

U.S.C. § 9601 et seg., in 1980 to “provide for liability, compen-

sation, cleanup, and emergency response for hazardous sub-

stances released into the environment and the cleanup of

inactive hazardous waste disposal sites.” Pub. L. No. 96-510,

94 Stat. 2767 (1980). The statute provides several mecha-

nisms to further these objectives. Section 105 requires the

President to promulgate and publish a National Contingency

Plan (NCP) to direct actions in response to a hazardous

reprinted in 42 U.S.C.A. § 9615 app. at 291-95 (1993 West

Supp.). Under section 104, 42 U.S.C. § 9604(a)(1), the Presi-

dent (again, EPA by delegation, see Exec. Order No. 12,580

§ 2(g)) may undertake direct remedial actions—either by

* Chief Judge Mikva’s dissent will be published separately.

employing agency personnel or through private contracting—

to clean up a contaminated site and may fund the cost of such

actions through the Hazardous Waste Superfund, 26 U.S.C.

§ 9507 (1988). The government may then bring cost recov-

ery actions under section 107 of CERCLA against responsible

parties to replenish the funds expended. 42 U.S.C.

§ 9607(a)(4)(A).

Alternatively, where “there may be an imminent and sub-

stantial endangerment to the public health or welfare or the

environment,” EPA may order parties to clean up the hazard-

ous waste and remedy its effects. 42 U.S.C. § 9606(a); Exec.

Order No. 12,580 § 4(d)(1). Those who receive and comply

with such orders are entitled to reimbursement of their

reasonable costs if they are not liable under section 107, 42

U.S.C. § 9607(a), or—even if liable—if they establish on the

administrative record that the cleanup action ordered was

arbitrary and capricious or otherwise unlawful. 42 U.S.C.

§ 9606(b)(2)(C)-(D). EPA also may assess civil penalties for

noncompliance with certain CERCLA provisions and bring an

action in federal district court to collect such penalties. 42

U.S.C. § 9609; Exec. Order No. 12,580 § 4(d)(2).

CERCLA also authorizes private parties and EPA to bring

civil actions independently to recover their costs associated

with the cleanup of hazardous wastes from those responsible

for the contamination. 42 U.S.C. § 9607(a). Section 107 of

CERCLA generally imposes strict liability on, among others,

all prior and present “owners and operators” of hazardous

waste sites. Jd § 9607(a)(1). Congress created a safe har-

bor provision for secured creditors, however, in the definition

of “owner or operator,” providing that “[sJuch term does not

include a person, who, without participating in the manage-

ment of a vessel or facility, holds indicia of ownership primar-

ily to protect his security interest in the vessel or facility.”

42 U.S.C. § 9601(20)(A).

Conflicting judicial interpretations as to the scope of this

secured creditor exemption opened the possibility that lend-

ers would be held liable for the cost of cleaning up contami-

nated property that they hold merely as collateral. Lenders

lacked clear guidance as to the extent to which they could

involve themselves in the affairs of a facility without incurring

liability and also as to whether they would forfeit the exemp-

tion by exercising their right of foreclosure, which could be

thought to convert their “indicia of ownership”—the security

interest—into actual ownership. See United States v. Mary-

land Bank & Trust Co., 632 F. Supp. 573, 578-80 (D. Md.

1986). In United States v. Fleet Factors Corp., 901 F.2d 1550

(11th Cir. 1990), cert. denied, 498 U.S. 1046 (1991), the court,

although adhering to the settled view that Congress intended

to protect the commercial practices of secured creditors “in

their normal course of business,” id. at 1556, nevertheless

stated that “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 hazardous waste

disposal decisions if it so chose.” Jd at 1558 (emphasis

added).

This language, portending as it did an expansion in the

scope of secured creditor liability, caused considerable dis-

comfort in financial circles. Intervenor American Bankers

Association points to survey data indicating that lenders

curtailed loans made to certain classes of borrowers or se-

cured by some types of properties in order to avoid the

virtually unlimited liability risk associated with collateral

property that may be contaminated. Some lenders, we are

told, even chose to abandon collateral properties rather than

foreclosing on them for fear of post-foreclosure liability.

EPA, responding to the understandable clamor from the

banking community and in light of the federal government's

increasing role as a secured creditor after taking over failed

savings and loans,’ instituted a rulemaking proceeding, 56

' Federal bank regulatory agencies might themselves be consid-

ered “owners and operators” of collateral property held by failed

thrifts after their appointment as receivers or conservators of the

thrifts, see 12 U.S.C. § 1821(d)2XA)(B), thus leading to EPA's

concern that the federal government may be potentially liable. See

56 Fed. Reg. 28,798, 28,799 (1991); 57 Fed. Reg. 18,344, 18,345

(1992).

Fed. Reg. 28,798 (1991), to define the secured creditor exemp-

tion when legislative efforts to amend CERCLA

failed. See, eg., H.R. 4494, 101st Cong., 2d Sess. (1990), 136

Cong. Rec. H1505 (daily ed. Apr. 4, 1990). In April 1992,

EPA issued the final regulation, which employs a framework

of specific tests to provide clearer articulation of a lender’s

scope of liability under CERCLA. The rule provides an

overall standard for judging when a lender’s “(pJarticipation

in [mJanagement” causes the lender to forfeit its exemption.

40 C.F.R. § 300.1100(c)(1) (1992). A lender may, without

incurring liability, undertake investigatory actions before the

creation of a security interest, monitor or inspect the facility,

and require that the borrower comply with all environmental

standards. 40 C.F.R. § 300.1100(c)(2). When a loan nears

default, the rule permits the lender to engage in work-out

negotiations and activities, including ensuring that the collat-

eral facility does not violate environmental laws. 40 C.F.R.

§ 300.1100(c)(2)(ii)(B). The rule also protects a secured cred-

itor that acquires full title to the collateral property through

foreclosure, as long as the creditor did not participate in the

facility's management prior to foreclosure and undertakes

certain diligent efforts to divest itself of the property. 40

C.F.R. § 300.1100(d). Lenders still face liability under sec-

tion 107(a)(3) and (4)}—as opposed to liability as an “owner

and operator” under section 107(a)(1) and (2)—if they arrange

for the disposal of hazardous substances at a facility or accept

hazardous waste for transportation and disposal. 40 C.F.R.

§ 300.1100(d)(3).

In response to comments questioning whether the rule

would apply in actions where the United States was not a

party, EPA stated that the regulation is “a ‘legislative’ or

‘substantive’ rule that has undergone notice-and-comment

pursuant to the Administrative Procedure Act” and as such

“defines the liability of holders [of security interests) for

CERCLA response costs in both the United States’ and

private party litigation.” 57 Fed. Reg. 18,344, 18,368 (1992).

The agency alternatively asserted that even if the rule were

read as “a ‘mere’ interpretation of section 101(20)(A),” it

would affect third-party litigation since “EPA guidance and

interpretations of laws administered by the Agency are given

substantial deference by the courts.” Id. (citations omitted).

Michigan and the Chemical Manufacturers Association filed

petitions for review of the final regulation under section

113(a) of CERCLA, 42 U.S.C. § 9613(a), which gives us

exclusive jurisdiction to review any regulation promulgated

under the statute. Petitioners are interested in the EPA rule

because, as potential litigants under section 107, they do not

want to be foreclosed from suing lenders. Petitioners argue

that EPA lacks statutory authority to define, through its

regulation, the scope of lender liability under section 107—an

issue that they assert only federal courts may adjudicate.

They also urge that the substance of the regulation contra-

dicts the plain meaning of certain statutory language.

Il.

Although petitioners bring a general challenge to the au-

thority of EPA to promulgate any substantive regulations

under CERCLA, that issue is settled. We held in Wi

Seed Co. Ine. v. Bush, 946 F2d 918, 920 (D.C. Cir. 1991),

cert. denied, 112 S. Ct. 1584 (1992), that the President had

broadly delegated his statutory powers to EPA, and it is “the

administering agency” for the statute. However, we had

previously recognized that with respect to any specific regula-

tion, EPA must demonstrate “either explicit or implicit evi-

dence of congressional intent to delegate interpretive authori-

ty.” Linemaster Switch Corp. ». EPA, 938 F.2d 1299, 1303

(D.C. Cir. 1991), EPA, for its part, contends that Wagner

Seed went further and recognized EPA's general authority

under section 115 of CERCLA? to promulgate rules that a

typical administrative agency would issue, rules that are

“reasonably related to the purposes of the enabling legisla-

2 That section states:

The President is authorized to delegate and assign any

duties or powers imposed upon or assigned to him and to

promulgate any regulations necessary to carry out the provi-

sions of this subchapter.

42 U.S.C. § 9615.

tion.” Mourning v. Family Publications Serv., Inc., 411 U.S.

356, 369 (1973) (quotations omitted).

The government overreads Wagner Seed. We held there

that EPA had authority to interpret certain language in

section 106 of CERCLA that applied to EPA’s administrative

responsibilities. We rejected petitioners’ argument, which

found some support in a strong dissent, that the entire

section 106 referring to liability questions must be interpret-

ed in court, and that EPA therefore had no authority to

define that section. To permit EPA to do so, petitioners had

contended, would be inconsistent with the Supreme Court’s

decision in Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990),

holding that an agency may not issue regulations covering

“‘an area in which it has no jurisdiction.”” Jd at 650

(citations omitted). We emphasized, however, that the lan-

guage EPA interpreted did not bear directly on liability

issues and, indeed, suggested that since Congress provided

for de novo judicial review of the agency’s “particularized

decision respecting liability,” deference as to those issues

would be inappropriate. Wagner Seed, 946 F.2d at $22. Had

EPA attempted to define the manner in which a party sought

judicial redress, “the rationale of Adams Fruit would seem to

apply.” Jd at 923. Here we encounter an issue not squarely

decided in Wagner Seed—whether the EPA can, by regula-

tion, define and limit a party’s liability under section 107.

But the reasoning of Wagner Seed, or at least its dicta, cuts

against the government.

EPA looks to several different portions of CERCLA to find

the specific authority we have required. The agency points

to section 105 of CERCLA, which provides that the agency

has responsibility to promulgate the national contingency plan

setting forth the actions and procedures to be taken in

response to a contamination. It is argued that the broad

language of section 105, authorizing EPA “to reflect and

effectuate the responsibilities and powers created by this

chapter,” 42 U.S.C. § 9605(a); Exec. Order No. 12,580

§ 1(bX(1), gives it power to define section 107 liability—which

the agency characterizes as a “responsibility and power”

under the chapter. Although the mandate of section 105 does

“provide[ ) the EPA with broad rulemaking authority to craft

the NCP,” Ohio v. EPA, 838 F.2d 1325, 1331 (D.C. Cir. 1988),

it is hardly a specific delegation of authority to EPA to

interpret section 107. We must still determine whether

defining the scope of liability is among the “responsibilities

and powers” Congress delegated to EPA under CERCLA;

EPA points to specific provisions of that section, para-

graphs 105(a)(4) and 105(a)(3). The former authorizes the

agency to prescribe “appropriate roles and responsibilities

... Of nongovernmental entities in effectuating the plan.” 42

U.S.C. § 9605(a)(4) (emphasis added). EPA claims that the

lender liability rule accomplishes just that by defining the

“role” of security creditors. That is an imaginative use of the

word role, but EPA’s argument is hardly persuasive since

section 105 refers to the nature of actions parties must take

in response to contamination—not their ultimate liability for

the contamination set forth in section 107. If EPA’s position

were correct, Congress would have had no need to provide for

a party’s liability in section 107; EPA would have been

authorized to develop those standards under section 105. For

similar reasons, paragraph 105(a)(3) does not help EPA.

That provision obliges the agency to issue “methods and

criteria for determining the appropriate extent of removal,

remedy, and other measures authorized by [CERCLA],” but

it does not speak to liability. As discussed below, a party

might be obliged to provide a remedy and be entitled to

reimbursement when determined subsequently not to be lia-

ble.

EPA also relies on those statutory provisions which grant it

authority to seek enforcement. The agency may choose to

3 Section 107 does implicate EPA's role in promulgating the NCP

under section 105 because response costs are recoverable only to

the extent that they are “consistent with the national contingency

plan,” 42 U.S.C. § 9607(a)4)(B). That provision, however, speaks

not to the question of liability but instead to the remedy against a

party already deemed to be liable. EPA’s role in defining the

parameters of the NCP, therefore, does not translate to authority to

determine liability under section 107, but rather to limit the level of

damages recoverable by the prevailing party.

10a

contract to clean up a contaminated site (financed through the

Superfund), and then bring action in federal court under

section 107(a)(4)(A) to recover its costs from a liable party.

It is argued that the agency must first decide whether a party

is actually liable before bringing such an action. That is no

different, however, than any government “prosecutor” who

must in good faith determine for itself whether a civil action

in federal court should be brought—which necessarily in-

cludes a judgment whether a potential defendant violated the

law or is “liable.” The court is, nevertheless, the first body to

formally determine liability, and therefore a civil prosecutor

typically lacks authority to issue substantive regulations to

interpret a statute establishing liability. See, eg, EEOC v.

Arabian Am. Oil Co., 111 S. Ct. 1227, 1235 (1991); Skidmore

v. Swift & Co., 323 U.S. 134, 137-38 (1944).

To be sure, the agency also has authority, when imminent

danger of harm exists, to issue administrative orders under

section 106(a) requiring private parties to clean up a site.

And, if the party refuses, section 106(b)(1) authorizes EPA to

seek compliance in federal court. But, under the statute, a

respondent must comply with such orders whether or not it is

liable. Liability issues are resolved when the party against

whom the order was levied seeks reimbursement under sec-

tion 106(b)(2). The statutory scheme might be described as

requiring parties to shoot first (clean up) and ask questions

(determine who bears the ultimate liability) later.

That brings us to EPA’s strongest argument—that its role

in implementing the reimbursement provisions of section

106(b)(2) implies authority to define liability. Under that

section, a party that has cleaned up a contaminated site

pursuant to an administrative order may petition the EPA for

reimbursement of its reasonable costs. If EPA refuses, a

federal court may order reimbursement if it determines that

the party is not liable or, even if liable, that the party has

demonstrated that the cleanup actions it was ordered to take

were arbitrary and capricious or otherwise unlawful. 42

U.S.C. § 9606(b)(2)(C)-(D). By implication, EPA argues that

it must decide these liability questions when it determines

whether or not to reimburse.

A careful reading of that provision, and the entire subsec-

tion 106(b),* leads us to a contrary view. Although a party

must first petition EPA for reimbursement under subpara-

graph 106(b)(2)(A), that provision is completely silent as to

what criteria EPA uses to grant reimbursement. If EPA

denies reimbursement because the agency contends the party

is liable, the party has a right to bring an action in federal

court under subparagraph 106(b)(2)(B); if the party establish-

es that it is not liable by a preponderance of the evidence,

under subparagraph 106(b)(2)(C) it prevails. EPA is, under

* Section 106(b) provides in relevant part:

(2A) Any person who receives and complies with the terms

of any order issued under subsection (a) of this section may,

within 60 days after completion of the required action, petition

the President for reimbursement from the Fund for the reason-

able costs of such action, plus interest...

(B) If the President refuses to grant all or part of a petition

made under this paragraph, the petitioner may within 30 days

of receipt of such refusal file an action against the President in

the appropriate United States district court seeking reimburse-

ment from the Fund.

bursement, the petitioner shall establish by a preponderance of

the evidence that it is not liable for response costs under

section 9607(a) of this title and that costs for which it seeks

reimbursement are reasonable in light of the action required by

the order.

(D) A petitioner who is liable for response costs under

section 9607(a) of this title may also recover its reasonable

costs of response to the extent that it can demonstrate, on the

administrative record, that the President's decision in selecting

the response action ordered was arbitrary and capricious or

was otherwise not in accordance with law....

42 U.S.C. § 9606(b).

*In fact, EPA may even reimburse party who may be liable,

since under section 122(a), EPA may enter into an agreement with

any party to cleanup a hazardous waste site (including the owner or

operator of the site) and under section 122(b) agree in advance to

reimburse that party for its costs. 42 U.S.C. $$ 9622(a), (0X1).

12a

that scenario, only a defendant; its preliminary conclusion

that the party was liable is entitled to no consideration, let

alone the deference afforded to the typical administrative

agency adjudication. On the other hand, a petitioner who is

liable may nevertheless seek review under subparagraph

106(b)(2)(D) to challenge the reasonableness of EPA's or-

dered response. In such a case, the party, “a petitioner,”

must establish on the administrative record that EPA’s order

was arbitrary and capricious or not in accordance with law,

the familiar APA standard of review.

The drafters of subsection 106(b) appear to us to have quite

consciously distinguished between EPA's role in determining

the appropriate cleanup action (which is entitled to deference

under 106(b)(2)(D)) from the agency’s position on liability

when a party disputes claims. Liability issues are to be

decided by the court, and therefore although EPA may well

enjoy authority to issue regulations interpreting or imple-

menting subparagraph 106(b)(2D), it does not seem that

Congress intended the same authority with respect to subpar-

agraphs 106(b)(2)(B) and (C).

That reading of section 106(b)(2) conforms with the provi-

sions of CERCLA that provide for a private right of action in

federal court by property owners or states to recover cleanup

costs, see 42 U.S.C. §§ 9607(a)(1-4), 9613(b), 9613(; 3550

Stevens Creek Assocs. v. Barclays Bank of Cal, 915 F.2d

1355, 1357 (9th Cir. 1990), cert. denied, 111 S. Ct. 2014 (1991),

from those liable for the contamination. Questions of liabili-

ty, accordingly, can be put at issue in federal court by

disputing private parties—without any government involve-

ment. Under these circumstances, it cannot be argued that

Congress intended EPA, one of many potential plaintiffs, to

have authority to, by regulation, define liability for a class of

potential defendants.’ Indeed, it was that very factor that

* When EPA grants reimbursement under section 106(a) because

it believes that a claimant is not liable it does, as the government

points out, make a determination as to liability, but that determina-

tion does not bind—indeed it has no effect on—a district court in an

action brought against the claimant by a third party under section

l3a

led the Court in Adams Fruit Co. v. Barrett, 494 U.S. 638,

650 (1990), to reject the Department of Labor’s regulation as

unauthorized. The Court said: “Congress has expressly

established the Judiciary and not the Department of Labor as

the adjudicator of private rights of action arising under the

statute.” Jd at 649 (emphasis added). Just so here. Con-

gress, by providing for private rights of action under section

107, has designated the courts and not EPA as the adjudica-

tor of the scope of CERCLA liability.’ And Congress did so

quite deliberately. See 126 Cong. Rec. 30,932 (1980) (state-

ment of Sen. Randolph) (“It is intended that issues of liability

not resolved by this act, if any, shal] be governed by tradition-

al and evolving principles of common law.”).

There remains the question of whether the regulation can

be sustained as an interpretative rule. The preamble to the

final regulation suggests that EPA attempted to straddle two

horses—issuing the rule as a legislative regulation but assert-

ing in the alternative that as an interpretative rule, it would

still be entitled to judicial deference and therefore affect

private party litigation. 67 Fed. Reg. 18,344, 18,368 (1992).

Although we have admitted that the distinction between

legislative and interpretative rules is “enshrouded in consid-

erable smog,” General Motors Corp. v. Ruckelshaus, 742 F.2d

1561, 1565 (D.C. Cir. 1984) (en banc) (quotations omitted), it is

commonly understood that a rule is legislative if it is “based

on an agency’s power to exercise its judgment as to how best

to implement a general statutory mandate,” American Min-

ing Congress v. Mine Safety & Health Admin, 995 F 2d

1106, 1110 (D.C. Cir. 1993) (quotations omitted) (emphasis

107. And, after all, EPA can reimburse a party based on reasons

other than non-liability. See 42 U.S.C. §§ 9606(>X2XA), 9622(bX1).

' Likewise, subparagraph (bX 2XA)’s “receives and complies” pro-

vision at issue in Wagner Seed has relevance only to the party

seeking reimbursement and the government and, therefore, does

not impinge upon s third party’s private right of action under

section 107. See Wagner Seed, 946 F.2d at 923.

l4a

added), and has the binding force of law. /d at 1109. By

contrast, an interpretative rule “is based on specific statutory

provisions,” United Technologies Corp. v. EPA, 821 F.2d 714,

719 (D.C. Cir. 1987), and represents the agency's construction

of the statute that is—while not binding—entitled to substan-

tial judicial deference under Chevron U.S.A. Ine. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).

The rule bears little resemblance to what we have tradi-

tionally found to be an interpretative regulation. EPA does

not really define specific statutory terms, but rather takes off

from those terms and devises a comprehensive regulatory

regimen to address the liability problems facing secured

creditors. This extensive quasi-legislative effort to imple-

ment the statute does not strike us as merely a construction

of statutory phrases, as was so in Wagner Seed See Nation-

al Family Planning & Reproductive Health Ass'n, Inc. v.

Sullivan, 979 F.2d 227, 237 (D.C. Cir. 1992); Chamber of

Commerce v. OSHA, 636 F.2d 464, 469 (D.C. Cir. 1980).

In any event, the same reason that prevents the agency

from issuing the rule as a substantive regulation precludes

judicial deference to EPA's offered “interpretation.” If Con-

gress meant the judiciary, not EPA, to determine liability

issues—and we believe Congress did—EPA’s view of statuto-

ry liability may not be given deference. “A precondition to

deference under Chevron is a congressional delegation of

administrative authority.” Adams Fruit Co. v. Barrett, 494

U.S. 638, 649 (1990). Chevron, which sets forth the reigning

rationale for judicial deference to agency interpretation of

statutes, is premised on the notion that Congress implicitly

delegated to the agency the authority to reconcile reasonably

statutory ambiguities or to fill reasonably statutory interstic-

es. Where Congress does not give an agency authority to

determine (usually formally) the interpretation of a statute in

the first instance and instead gives the agency authority only

to bring the question to a federal court as the “prosecutor,”

deference to the agency’s interpretation is inappropriate. See

15a

United States v. Western Elec. Co, 900 F.2d 283, 297 (D.C.

Cir. 1990). As we have explained, that is all that EPA can do

regarding liability issues. Moreover, even if an agency en-

joys authority to determine such a legal issue administrative-

ly, deference is withheld if a private party can bring the issue

independently to federal court under a private right of action.

See Litton Fin. Printing Div. v. NLRB, 111 S. Ct. 2215, 2223

(1991) (citing Local Union 1395, International Brotherhood of

Elec Workers v. NLRB, 797 F.2d 1027, 1030-31 (D.C. Cir.

1986)) (NLRB's interpretation of a collective bargaining

agreement not entitled to deference since private parties can

come to federal court independently to enforce those agree-

ments). Petitioners are such private parties; they wish to

preserve the right to sue lenders when, in petitioners’ view, a

lender’s behavior transgresses the statutory test—whether or

not EPA would regard the lender as liable. As we read the

statute, Congress intended that petitioners’ claim in such an

event should be evaluated by the federal courts independent

of EPA’s institutional view.®

Petitioners conceded that the regulation could be sustained

as a policy statement that would guide EPA's enforcement

proceedings across the country, but EPA has not asked that

its regulation be so regarded. Furthermore, intervenors

point out that if the regulation were to affect only EPA's

enforcement proceedings, lenders would still face potentially

staggering liability because of the generality of the statutory

language and the prospect of private suits. That potential

liability would force lenders to behave cautiously even if EPA

were to adhere to the regulation as its policy. Given our

uncertainty as to EPA's wishes, we think the proper course is

to vacate the rule and leave EPA free to take whatever steps

it thinks appropriate.

* EPA may well be brought into such an action as 8 third party

and, of course, its litigator’s view would be entitled to the same

respect that a court would give any litigant. That is not “defer-

ence.”

l6a

We well recognize the difficulties that lenders face in the

absence of the clarity EPA’s regulation would have provided.

Before turning to this rulemaking, EPA sought congressional

relief and was rebuffed. We see no alternative but that EPA

try again. The petition for review is granted and the regula-

tion is hereby vacated.

So Ordered.

eee oe

SEE .

17a

Notice: This opinion is subject to formal revision before publication in

the Federal Reporter or U.S.App.D.C. Reports. Users are requested to

notify the Clerk of any formal errors in order that corrections may be made

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 28, 1993 Filed March 1, 1994

No. 92-1312

FRANK J. KELiey, ATTORNEY GENERAL OF THE STATE OF MICHIGAN,

FRANK J. KELLEY, Ex REL. State OF MICHIGAN,

MICHIGAN DEPARTMENT oF NatuRaL Resources,

FRANK J. KELLEY,

PETITIONERS

Vv.

ENVIRONMENTAL PROTECTION AGENCY,

Wituiam K. Rely, ADMINISTRATOR,

RESPONDENTS

AMERICAN BANKERS ASSOCIATION,

EQuiPpMENT LEASING ASSOCIATION OF AMERICA,

CoMMERCIAL FINANCE ASSOCIATION,

AMERICAN CounciL oF LIFE INSURANCE,

AMERICAN COLLEGE or REAL Estate Lawyers,

INTERVENORS

Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

18a

No. 92-1314

CHEMICAL MANUFACTURERS ASSOCLATION,

PETITIONER

ENVIRONMENTAL PROTECTION AGENCY,

RESPONDENT

AMERICAN BANKERS ASSOCIATION,

EqQuipMeNtT LEASING ASSOCIATION OF AMERICA,

CoMMERCIAL FINANCE ASSOCIATION,

AMERICAN CounciL oF Lire INSURANCE,

AMERICAN COLLEGE oF Reat Estate LAwyErs,

INTERVENORS

Petition for Review of Orders of the

Environmental Protection Agency

Jeremy M. Firestone, Assistant Attorney General, State of

Michigan, argued the cause for petitioners Michigan Attorney

General Frank J. Kelley, the State of Michigan and the

Michigan Department of Natural Resources in No. 92-1312.

With him on the briefs was Thomas L. Casey, Solicitor, State

of Michigan.

Theodore L. Garrett, argued the cause for petitioner Chem-

ical Manufacturers Association in No. 92-1314. With him on

the briefs were David F. Zoll and Dell E. Perelman.

Bradley M. Campbell, Attorney, United States Department

of Justice, argued the cause for respondents. With him on

the brief was Earl C. Salo, Counsel, United States Environ-

mental Protection Agency. Michael A. McCord, Attorney,

United States Department of Justice, entered an appearance

for respondents.

iiaaaaaieaaeaaeiiaceinaaaiadiaai

19a

On the joint brief for intervenors American Bankers Asso-

ciation et al., and amicus curiae, Mortgage Bankers Associa-

tion of America were John J. Gill, Thomas J. Greco, Michael

F. Crotty, Roger D. Schwenke, Margaret V. Hathaway, How-

ard L. Feinstein, Robert S. McConnaughey, Samuel I. Gut-

ter, David T. Buente, Jr, Edwin E. Huddleson, III, and

William E. Cumberland Richard R. Goldberg entered an

appearance for intervenor American College of Real Estate

Lawyers in Nos. 92-1312 and 92-1314. |

Before: Mixva, Chief Judge, Sitperman and HENDERSON,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Sitserman.*

Dissenting opinion filed by Chief Judge Mixva

Mixva, Chief Judge, dissenting: The Comprehensive Envi-

ronmental Response, Compensation and Liability Act

(“CERCLA”), 42 U.S.C. § 9601 et seq, subjects four classes

of parties to potential liability for hazardous waste cleanup

costs: (1) the current owner and operator of a facility where

hazardous substances are located; (2) any person who owned

or operated the facility at the time of disposal of hazardous

substances; (3) any person who arranged for the disposal of

hazardous substances; and (4) any person who accepted

hazardous substances for transport to a treatment facility or

disposal site. 42 U.S.C. § 9607(a). Under CERCLA, the

term “owner or operator” includes any person “owning or

operating” a site of environmental contamination but “does

not include a person who, without participating in the man-

agement of a vessel or facility, holds indicia of ownership

primarily to protect his security interest in the vessel or

facility.” 42 U.S.C. § 9601(20)(A). This exception, known as

the secured lender exemption, lies at the heart of this appeal.

In 1991, the EPA commenced a rulemaking to “specify the

range of activities that may be undertaken” by secured

lenders without incurring CERCLA liability. 56 Fed. Reg.

28,798, 28,799 (June 24, 1991). In 1992, the EPA adopted its

Final Rule on Lender Liability Under CERCLA which pro-

* The opinion for the Court was filed February 4, 1994.

20a

vided that: (1) prior to foreclosure, a lender is subject to

CERCLA liability only if she actually exercises decisionmak-

ing control over the borrower’s environmental compliance, or

over all or substantially all of the operational aspects of the

enterprise, 40 C.F.R. § 300.1100(c)(1) (1992); and (2) after

foreclosing, a lender remains exempt from CERCLA liability

so long as she takes steps to divest herself of the property in

a prompt and commercially reasonable manner, 40 C.F.R.

§ 300.1100(d)(1) (1992). The EPA intended that these regu-

lations would bind all parties in CERCLA litigation, regard-

less of whether the United States was a party to the suit. 67

Fed. Reg. 18,344, 18,363 (April 29, 1992).

Michigan and the Chemical Manufacturers Association filed

petitions for review of the EPA Final Rule because, as

potential litigants, they did not want to be foreclosed from

recovering cleanup costs from those secured lenders that the

Final Rule exempts from CERCLA liability. Petitioners

argue, and the majority agrees, that the Final Rule is

invalid because Congress delegated to the courts, rather

than to the Executive branch, authority to interpret the

scope of CERCLA’s secured lender exemption. I disagree.

CERCLA's language, structure and legislative history sug-

gest that Congress implicitly delegated to the President (who

in turn delegated to the EPA) the authority to Interpret who

falls within the scope of CERCLA’s regulatory regime. Ac-

cordingly, the EPA's Final Rule on Lender Liability Under

CERCLA is entitled to Chevron deference from this court.

See Chevron U.S.A. Ine. v. Natural Resources Defense Coun-

cil, Ine, 467 U.S. 837 (1984). I would uphold the Rule.

A. Delegation of Authority

When Congress enacted CERCLA in 1980, it implicitly

delegated authority to the EPA to define which parties

fell within the statute’s regulatory regime. For example,

CERCLA charged the EPA Administrator with responsibility

for prescribing the manner and form by which owners and

operators were to notify the agency of hazardous waste

storage, treatment or disposal at their facilities. 42 U.S.C.

§ 9603(c). CERCLA also authorized the EPA Administrator

2la

to promulgate rules and regulations specifying the record-

keeping requirements to which owners and operators of haz-

ardous waste facilities were subject and vested the EPA

Administrator with discretion to waive those requirements on

petition from those parties. 42 U.S.C. § 9603(d). In addi-

tion, CERCLA authorized the President, who in turn autho-

rized the EPA, to undertake those remedial actions necessary

to contain or remove hazardous substances at-risk of release

“unless the President determine{d] that such removal and

remedial action w{ould) be done properly by the owner or

operator of the vessel or facility from which the release

or threat of release emanate{d].” 42 U.S.C. § 9604(1).

CERCLA also authorized the EPA to issue abatement orders

to those parties responsible for particularly dangerous haz-

ardous wastes. 42 U.S.C. § 9606. To administer each of

these subsections effectively, the EPA was obliged to con-

strue the term “owner or operator” within the meaning of

CERCLA; Congress implicitly delegated authority to the

EPA, as the administering agency, to do so. See Wagner

Seed Co, Inc. v. Bush, 946 F.2d 918, 923 (D.C. Cir. 1991),

cert. denied, 112 S. Ct. 1584 (1992). Consequently, the EPA’s

construction of “owner or operator” is entitled to Chevron

deference. See Chevron U.S.A Inc. v. Natural Resources

Defense Council, Ine, 467 U.S. 831 (1984).

The overall structure of CERCLA’s statutory scheme sug-

gests that Congress delegated authority to the Executive to

construe the scope of CERCLA’s statutory coverage. In

CERCLA § 101, Congress defined key statutory terms.

Typically, statutes contain these definitional sections to frame

an agency's delegated authority to interpret ambiguous statu-

tory language. It would be unusual if not anomalous for

Congress to have included, and left undifferentiated among

CERCLA’s statutory definitions, the term “owner or opera-

tor” had Congress not intended to delegate authority to the

EPA to interpret this concededly ambiguous statutory term.

In interpreting the statute otherwise, the majority renders

the EPA powerless to define not only the term “owner or

Operator” within the meaning of CERCLA, but “vessel,”

“facility,” “transport” and “transportation” as well. Inter-

22a

preting CERCLA in this manner generates serious confusion

within the statute’s “comprehensive” regulatory regime.

The majority arrives at its statutory interpretation by

passing over much of CERCLA’s language, structure

and legislative history and concentrating instead on

the preponderance-of-the-evidence standard embodied in

CERCLA § 106(b)(2)(C). This standard of review signals to

the majority that Congress intended to reserve all determina-

tions of CERCLA liability, including the scope of statutory

coverage, for the courts. In my view, the majority misreads

the statute and misinterprets congressional intent. The

preponderance-of-the-evidence standard embodied in

CERCLA § 106(b)(2)(C) simply reflects continued congres-

sional intent to have common law principles govern determi-

nations of proximate causation regarding hazardous waste

contaminations.

Congress amended CERCLA in 1986 to provide, inter alia,

a reimbursement mechanism for certain parties that receive

and comply with EPA abatement orders. Pursuant to

CERCLA § 106(b)(2XC), a party is entitled to reimburse-

ment of its abatement costs if it can establish “by a prepon-

derance of the evidence that it is not liable for response costs

under 9607(a).” 42 U.S.C. § 9606(b)(2XC). Significantly, the

legislative history of the 1986 amendments is devoid of any

reference to, much less debate regarding, rescinding authori-

ty from the EPA to interpret who falls within the scope of

CERCLA’s statutory coverage. That is because

§ 106(b)(2)(C) does not and was not intended to strip the

EPA of this authority. The preponderance-of-the-evidence

standard employed in § 106(b)(2)(C) simply restates the pre-

ponderance standard already employed in § 107(d).

_ CERCLA § 107, entitled “Liability,” provides in subsection

(a) that “the owner and operator of a vessel or facility” as

well as other specified parties “shall be liable” for response

costs. Subsection (b), entitled “Defenses,” provides that:

There shal] be no liability under subsection (a) of this

section for a person otherwise liable who can establish

by a preponderance of the evidence that the release or

threat of release of a hazardous substance and the

damages resulting therefrom were caused solely by—

(1) an act of God;

(2) an act of war;

(3) an act or omission of third party other than an

employee or agent of the defendant ... if the defen-

dant establishes by a preponderance of the evidence

that (a) he exercised due care with respect to the

hazardous substance concerned ... and (b) he took

precautions against foreseeable acts or omissions of

any such third party and the consequences that could

foreseeably result from such acts or omissions.

42 U.S.C. § 9607 (emphasis added). Thus, when it enacted

CERCLA in 1980, Congress did not subject the EPA’s inter-

pretation of “owner or operator,” or other key statutory

terms which define the scope of CERCLA’s coverage, to the

preponderance-of-the-evidence standard. Congress deliber-

ately structured § 107 so that only issues of causation were

subject to this standard of review. Indeed, the legislative

history of CERCLA § 107 indicates that Congress adopted

the preponderance-of-the-evidence standard in subsection (b)

to ensure that “the usual common law principles of causation,

including those of proximate causation, [wJould govern the

determination of whether a defendant ‘caused or contributed’

to a release or threatened release.” H.R. Rep. No. 96-1016,

96th Cong., 2nd Sess., pt. 2 at 33 (1980), reprinted in 1980

U.S.C.C.A.N. 6119, 6136.

On this reading of the statute, a party that receives and

complies with an EPA abatement order is entitled to reim-

bursement of costs incurred if it can prove by a preponder-

ance of the evidence, as required by § 107(b), that it did not

proximately cause the contamination. In § 106(b)(2)(B), Con-

gress afforded EPA the first crack at making these particu-

larized determinations of causality. However, Congress

wanted “traditional rules of foreseeability, causation, and

certainty” ultimately to govern determinations of CERCLA

liability. H.R. Rep. No. 99-253(I), 99th Cong., 2nd Sess. at

83 (1986) reprinted in 1986 U.S.C.C.AN. 2835, 2865. Accord-

24a

ingly, Congress incorporated into CERCLA § 106(b)(2)(C)

the preponderance standard set forth in § 107(b). In so

doing Congress changed little. Under CERCLA

§ 106(b)(2)(C), as in the rest of the statute, determinations of

causality rest ultimately with the courts while most other

determinations, including who falls within the scope of

CERCLA’s statutory coverage, are for the EPA and are

entitled to Chevron deference.

B. Private Right of Action

The majority bolsters its interpretation of CERCLA § 106

by reference to the private right of action that CERCLA

confers on third parties. According to the majority, “{i}t

cannot be argued that Congress intended EPA, one of many

potential plaintiffs, to have authority to, by regulation, define

liability for a class of potential defendants.” Kelley v. E.P.A,

No. 92-1312, slip op. at 12 (D.C. Cir. Feb. 4, 1994), 1994 U.S.

App. LEXIS 1715. The majority offers no explanation of

why that argument would be untenable. There is every

reason to hold that Congress created the private. right of

action to facilitate enforcement of CERCLA’s statutory

scheme within the parameters of lender liability which the

EPA, as the administering agency, would define.

According to the majority, Adams Fruit Co. v. Barrett, 494

U.S. 638 (1990) renders implausible the interpretation of

CERCLA § 106(h}(Z)(C) offered above. It reads Adams

Fruit to hold that the mere presence of a private right of

action reflects a congressional intent to assign to the judicia-

ry, rather than to the administrative agency, exclusive author-

ity to define the scope of statutory liability. I disagree.

At issue in Adams Fruit was whether Congress had dele-

gated to the Department of Labor the authority to interpret

the preemptive scope of the private right of action created by

the Agricultural Workers Protection Act. Because the De-

partment of Labor, (“DOL”), which was responsible for ad-

ministering the Act, was not charged in any respect with

administering the statute’s private right of action, the Court

held that no deference was due DOL regulations defining the

interplay between those actions and the exclusivity provisions

Do cteeeteeeneeeenneaeeeeanetnentnieiiiieiiesiiiieiaiiaaal

7 eee

25a

of the state worker compensation schemes. In promulgating

such regulations, DOL had simply “bootstrap[ped] itself into

an area in which it ha{d) no jurisdiction.” Adams Fruit Co. v,

Barrett, 494 U.S. 638, 650 (1990). By contrast, the EPA must

interpret the scope of CERCLA’s lender liability provisions

“in the first instance” in order to fulfill its administrative

responsibilities under CERCLA §§ 103, 104, and 106. Thus,

unlike DOL in Adams Fruit, the EPA is not construing

CERCLA’s private right of action per se when it construes

the term “owner or operator” within the meaning of

CERCLA. CERCLA’s private right of action thus provides

scant support for concluding, as the majority does, that

Congress reserved all determinations of liability under

CERCLA for the courts.

C. Chevron Analysis

In my view, the EPA did not exceed the scope of its

delegated authority in promulgating regulations that construe

the meaning of “owner or operator” within the meaning of

CERCLA. Because CERCLA’s secured lender exemption

lacks a plain meaning and the EPA’s Final Rule does not

construe that exemption unreasonably, I would deny the

petition and uphold the EPA’s Final Rule under Chevron.

26a

APPENDIX B

Notice: This opinion is subject to formal revision before publication in

the Federal Reporter or U.S.App.D.C. Reports. Users are requested to

notify the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Filed June 14, 1994

No. 92-1312

FRANK J. KeLvey, ATTORNEY GENERAL OF THE

STaTE OF MICHIGAN,

FRANK J. KELLEY, EX REL. STATE OF MICHIGAN,

MICHIGAN DEPARTMENT OF NATURAL RESOURCES,

FRANK J. KELLEY,

PETITIONERS

Vv.

ENVIRONMENTAL PROTECTION AGENCY,

WittiaM K. Rei.viy, ADMINISTRATOR,

RESPONDENTS

AMERICAN BANKERS ASSOCIATION,

EQuiPMENT LEASING ASSOCIATION OF AMERICA,

COMMERCIAL FINANCE ASSOCIATION,

AMERICAN CounciL oF Lire INSURANCE,

AMERICAN COLLEGE OF REAL Estate LAWYERS,

INTERVENORS

Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

Sen PE Pe ae eRe, RP Cae Tad oe AO

27a

No. 92-1314

CHEMICAL MANUFACTURERS ASSOCIATION,

PETITIONER

ENVIRONMENTAL PROTECTION AGENCY,

RESPONDENT

AMERICAN BANKERS ASSOCIATION,

EqQuipMent LEasING ASSOCIATION OF AMERICA,

CoMMERCIAL FINANCE ASSOCIATION,

American Councit or Lire INSURANCE,

AMERICAN COLLEGE or REAL Estate Lawyers,

INTERVENORS

On Petition for Rehearing

Lois J. Schiffer, Acting Assistant Attorney General, Brad-

ley M. Campbell, Attorney, United States Department of

Justice, and Fart Salo, Counsel, United States Environmental

Protection Agency, filed a Petition for Rehearing and Sugges-

tion for Rehearing En Bane on behalf of respondents.

John J. Gill, Thomas J. Greco, Michael F’. Crotty, Counsel,

American Bankers Association, Samuel J. Gutter, David T.

Buente, Jr., Counsel, Commerci Finance Association, Roger

D. Schwenke, Counsel, American College of Real Estate

Lawyers, Margaret V. Hathaway, Howard L. Feinstein,

Counsel, American Council of Life Insurance, Phillip E.

- Stano,. Counsel, American Council of Life Insurance, and

Edwin E. Huddleson, III, Counsel, Equipment Leasing Asso-

ciation of America, filed a Petition for Rehearing and Sugges-

tion for Rehearing En Bane on behalf of intervenors.

28a

Thomas L. Casey, Solicitor General, State of Michigan, and

Jeremy M. Firestone, Assistant Attorney General, State of

Michigan, filed a Response to Petitions for Rehearing and

Suggestions for Rehearing En Banc on behalf of petitioners

Michigan Attorney General Frank J. Kelley, the State of

Michigan, and the Michigan Department of Natural Re-

sources.

Theodore L. Garrett, David F. Zoll, General Counsel, and

Dell E. Perelman, Senior Assistant General Counsel, filed a

Response to Petitions for Rehearing and Suggestions for

Rehearing En Banc on behalf of petitioner Chemical Manu-

facturers Association.

Before: Mixva, Chief Judge, Sitperman, and Henperson,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Sitperman.*

SitserMAN, Circuit Judge: The government and interve-

nors—dropping most of their statutory arguments before the

panel—petition for rehearing based largely on our colleague’s

dissent (which issued after our opinion and therefore to which

we did not refer). We held that Congress had not authorized

EPA to issue substantive regulations that determined under

what circumstances a lender is to be deemed an “owner and

operator of a vessel or facility” as used in CERCLA § 107

(and thus liable thereunder) because that section, and section

106, command that liability issues are to be resolved in

federal district court. Therefore, Congress did not implicitly

delegate to EPA—one of the possible litigants—authority to

specify when a lender will be regarded as an owner or

operator. Indeed, Congress itself in the definitional section

of the statute (section 101) explicitly stated that the term

owner or operator “does 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.” 42 U.S.C. § 9601(20)(A). The Chief

Judge agreed that some liability issues were to be determined

de novo by the district court under the familiar preponder-

* Chief Judge Mixva would grant the petition for rehearing.

29a

ance of evidence standard, but he thought they were limited

to questions of causation set forth in section 107(b):

(b) Defenses

There shall be no liability under subsection (a) of this

section for a person otherwise liable who can establish by

& preponderance of the evidence that the release or

threat of release of a hazardous substance and the dam-

ages resulting therefrom were caused solely by—

(1) an act of God;

(2) an act of war;

(3) an act or omission of a third party other than an

employee or agent of the defendant ...; or

(4) any combination of the foregoing paragraphs.

42 US.C. § 9607 (1988). What the Chief Judge referred to

as “coverage” questions on the other hand—Jjust which party

can be deemed responsible, pursuant to section 107(a), for

causing Hability—were, according to Judge Mikva, to be

treated differently: Congress authorized EPA to advance its

views on those questions through substantive regulations

entitled to Chevron deference.

Judge Mikva relied on scattered provisions of the statute

which do not directly bear on any parties’ liability—let alone

that of a lender. For instance, section 103(c) authorizes EPA

to prescribe the manner and form by which owners and

operators are to notify the agency of hazardous waste stor-

age, treatment, or disposal at their facilities, and section

103(d) authorizes EPA to promulgate rules and regulations

specifying recordkeeping requirements to which owners and

operators, inter alia, are subject. But to be authorized to

prescribe the manner and form by which normal owners and

operators are to report to the agency is not necessarily to be

authorized to determine the specific circumstances under

which a lender would be an owner and operator and therefore

liable for hazardous waste clean up. Judge Mikva argued

that to implement these sections “effectively” EPA was

obliged to define the terms owner and operator generally.

Even that does not seem to be 80. EPA's specific responsibil-

30a

ity under section 103(c) is merely to pass the reported

information on to state agencies, and importantly, the agency

was granted no authority to enforce that section. An entity

who refused to notify EPA could only be prosecuted criminal-

ly (by the Justice Department) and only for a willful viola-

tion—which certainly would not extend to a good faith belief

that one was not, under the circumstances, an owner or

operator.’

In addition, Judge Mikva relied on EPA's authority to

“undertake” remedial action at its own expense to deal with

imminent dangers or to allow a qualified owner or operator

(one who will act promptly and properly) to take the action

itself. But EPA, which can agree with an entity to fund all or

part of such activity, can, with respect to liability, only offer

an agreement not to sue. See 42 U.S.C. § 9622(c)(1). The

statute makes clear that such a covenant affects only that

party’s liability to the United States, and “[iJn no event shall a

potentially responsible party be subject to a lesser standard

of liability” by virtue of its agreement to undertake remedial

action under section 104 and to be reimbursed by EPA. 42

U.S.C. § 9604(a)(1); see also 42 U.S.C. § 9622(c)(1). And

section 122, which section 104 cross-references, specifically

provides that EPA “shall make all reasonable efforts to

recover the amount of such reimbursement under section

9607 of this title (CERCLA § 107)...." 42 U.S.C.

§ 9622(b1). In other words, as we emphasized in our

original opinion,® the drafters always came back to the liabili-

ty provisions of section 107, which calls for a judicial determi-

nation.

It seems to us, moreover, that there are analytical difficul-

ties with the Chief Judge’s approach to section 107, which

would divide up authority over liability issues between “cover-

age” and “causation.” Issues of coverage—the “who” ques-

' Under section 109 2 civil penalty may also be imposed for a

103(d) violation, but only for willful destruction or falsification of

records, conduct prohibited by paragraph 103(dX2). |

See Kelley v. EPA, 18 F.3d 1100, 1106-07 (D.C. Cir. 1994)

discussing abatement orders and reimbursement decisions under

section 106, upon which the Chief Judge also relies.

3la

tions—are intertwined with what Judge Mikva terms causa-

tion—the “what” questions—and, therefore, it would be terri-

bly difficult for federal courts to defer to an EPA regulation

as to who might be liable without overlapping into the ques-

tion of what caused the injury to the environment, In that

respect—and we think this point is, by itself, determinative—

even if EPA might be thought to enjoy authority to define

“owner or operator” for some purposes, the stated regulation

before us does not even purport to define those terms.

Instead, EPA issued its extensive regulation to define:

three key terms found in the exemption that are not

otherwise defined in CERCLA: (1) “Indicia of owner-

ship,” (2) the requirement that the ownership indicia be

held “primarily to protect [a] security interest,” and (3)

the prohibition of the holder from “participating in the

management” of the facility. °

57 Fed. Reg. 18374 (1992). The words “definition” and

“coverage” as used by the Chief Judge and the government

are therefore misleading insofar as they imply connotations of

status under the Act. The agency has not really offered

coverage definitions but rather has presented its view, in the

form of a regulation, of the circumstances under which a

lender will not be liable for a facility’s release of hazardous

waste.

The Chief Judge’s dissent and the government’s petition

for rehearing thus ignore the genesis of the regulation before

us—that it is an effort to issue a legislative “holding” as to

the circumstances under which a lender would be liable,

rather than to publish a definition of owner or operator. But

even if one viewed the regulation as does the Chief Judge,

section 107 provides no support for the notion that courts

decide the causation aspects of liability while EPA retains

authority to define terms of “coverage.” Section 107(a) seta

forth the general grounds whereby liability {s imposed on

persons, including “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....” 42

U.S.C. § 9607(a)(2) (1988). It follows that a plaintiff, whether

32a

or not EPA, who wishes to claim that “X” is liable under

subsection (a)(2) must prove that “X” was the owner or

operator at the time of disposal. Since the proceeding to

establish that claim is in federal district court, in the absence

of any language to the contrary, Congress must have meant

that the plaintiff bore the burden to prove those facts by a

preponderance of the evidence. After all, that is the eviden-

tiary standard of proof in a federal civil proceeding. See 9

WIcMoRE ON EvipENce § 2498, at 419 (Chadbourn rev. 1981).

To be sure, as the dissent emphasized, section 107(b)

(Defenses) does explicitly refer to “preponderance of the

evidence” whereas section 107(a) does not, but that is because

Congress put the burden of proof to establish 107(b) defenses

on the defendant. Congress thus had to refer to the prepon-

derance of evidence standard in subsection (b) because it

wished to make clear that, as to those defenses, the burden

was switched. Cf Texas Dep't of Community Affairs v.

Burdine, 450 U.S. 248, 256-58 (1981) (holding that defendants

under Title VII, where Congress had placed the burden of

proof on plaintiffs, need not prove defenses by a preponder-

ance of the evidence). There is no indication, however, that

the evidentiary standard was meant to be any different in

section 107(a) than in (b).

The government makes the same primary argument as

does the Chief Judge—that “Congress delegated to EPA the

authority to construe ambiguous terms that bear on section

107 liability.” But, tellingly, the government never asserts

that the regulation can be justified as an effort to define

“owner or operator”; indeed, the petition for rehearing never

points precisely to the terms EPA regards as ambiguous.

The government also apparently recognizes the difficulties

presented by the dissent’s reading of section 107 because it

does not embrace the Chief Judge’s bifurcated approach to

that section. Rather, EPA on rehearing argues that the

preponderance of evidence standard applies to factual issues

but not legal determinations. Of course, the government is

right, but its proposition is beside the point. We did not

suggest that section 107 liability issues that could be de-

33a

scribed as legal rather than factual would be decided as

evidentiary questions. We thought the preponderance of

evidence standard was significant only because it is not a

standard used for judicial review of agency action but rather

for a trial de novo.

It will be recalled that the government had relied on

section 106, which authorizes EPA to reimburse a party for

its costs in complying with an EPA clean-up order, as support

for its claim that the agency may issue regulations defining

liability. The weakness in EPA’s argument, as we pointed

out in our opinion, is that only subparagraph 106(b)(2)(D),

which assumes liability is established and which relates to

whether EPA's clean-up order was “arbitrary and capri-

cious” (presumably excessive) “as demonstrated by the ad-

ministrative record,” uses administrative law terms. Subpar-

agraph 106(b)(2)(C), speaking to liability, on the other hand,

employs the phrase “preponderance of evidence” (a non-

administrative law standard) and cross-references subsection

107(a}—thus making clear that liability issues were to be

determined de novo in federal district court.

We thought that our reading of sections 106 and 107—that

Congress put all liability issues (fact and law) to the federal

district courts—accorded with the creation of private rights of

action under the statute whereby persons or states could sue

those liable without EPA’s participation or permission. The

government complains that we failed to explain why the

creation of private rights of action “should diminish EPA’s

claim to deference in resolving statutory questions.” We

admit we thought the point was obvious. See Office of

Professional Employees Intl Union, Local 2 v. FDIC, 962

F.2d 63, 65 (D.C. Cir. 1992) (disposing of the issue in one

paragraph). When Congress delegates all the adjudicatory

functions under a statute to an administrative agency subject

only to APA-like judicial review of the agency’s decisions, it is

presumed that Congress wishes the agency to enjoy a good

deal of leeway to interpret statutory terms, either by regula-

tion or through the adjudication itself. That presumption,

articulated most notably in the famous case, Chevron USA

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837

34a

(1984), is based on the notion that Congress would wish an

agency with political authority, rather than the judiciary, to

exercise the policy choices implicit in statutory interpretation

of ambiguous terms. Moreover, Chevron deference permits a

greater degree of national uniformity with respect to the

interpretation of a statute administered by an agency enjoy-

ing that deference. But, as Justice Scalia has warned, the

assumption is just that, and Congress may always act to the

contrary. See Antonin Scalia, Judicial Deference to Admin-

istrative Interpretations of Law, 1989 Duxe L.J. 511, 515-16

(1989). When Congress treats an agency only as a prosecu-

tor without specific authority to issue regulations bearing on

the questions prosecuted, we accordingly do not assume that

Congress has delegated this sort of policymaking authority to

the agency. United States v. Western Elec. Co., 900 F.2d 283,

297 (D.C. Cir. 1990). That is so in this case, at least with

respect to liability issues. And when on top of that prosecu-

torial function, as here, private rights of action are created—

not requiring the participation of the agency at all—it seems

somewhat strained to claim that Congress could be thought to

have implicitly delegated to EPA the policymaking role that

Chevron presumes (in pursuit of uniformity) to determine

who should be liable under the statute. The structure of the

statutory scheme is flatly inconsistent with the premise of

Chevron.

That is not to say, of course, that Congress could not

delegate substantive authority to interpret statutory terms to

an agency in the mixed position that EPA occupies under

CERCLA. It may well have done so, as the government

contends, in other parts of the statute regardless of the

private rights of action. It may also be true that Congress

can and has delegated authority to issue substantive regula-

tions to other agencies under statutory schemes that provide

for private rights of action. We are concerned only with

whether such authority, and accordant Chevron deference,

was granted under particular sections of CERCLA. Al-

though it might be thought that this court has gone a long

way to recognize EPA’s regulatory power under CERCLA,

see Wagner Seed Co., Inc. v. Bush, 946 F.2d 918, 920 (D.C.

35a

Cir. 1991), cert. denied, 112 S. Ct. 1584 (1992), we have

insisted that each section of the statute be analyzed separate-

ly to determine whether EPA can assert authority to inter-

pret, with Chevron deference, substantive terms. See id at

923. Here, it must be remembered, we are not dealing just

with section 107 which provides for judicial determination of

liability. The terms which EPA wishes to define are not the

general phrase owner or operator but the much more detailed

language Congress fashioned in section 101(20)(A) to set forth

the circumstances under which a lender would be held liable.

Finally, the government reiterates its powerful policy argu-

ment that EPA should have authority to provide lenders a

much greater degree of certainty as to which action or

circumstances will create lender liability. We said before

that we, as judges, are powerless to respond to such argu-

ments, no matter how meritorious the policy claims.

Accordingly, we deny the petition for rehearing.

So ordered

36a

APPENDIX C

UNITED STATES COURT OF APPEALS

For The District of Columbia Circuit

NO. 92-1312 September Term, 1993

Frank J. Kelley, Attorney General of

The State of Michigan;

Department of Natural Resources,

Petitioners

William K. Reilly, Administrator,

U.S. Environmental Protection Agency,

Respondents

and consolidated Case No. 92-1314

FILED FEB 04 1994

MANDATE issued 7/28/94

PETITION FOR REVIEW OF AN ORDER OF THE

ENVIRONMENTAL PROTECTION AGENCY

Before: Mikva, Chief Judge; Silberman and

Henderson, Circuit Judges

JUDGMENT

These causes came on to be heard on the petitions for

review of an order of the U. S. Environmental Protection

Agency and were argued by counsel. On consideration

thereof, it is

ORDERED and ADJUDGED, by the Court, that the

petitions for review are granted, in accordance with the

Opinion for the Court filed herein this date.

Per Curiam

For The Court:

RON GARVIN, CLERK

36a(1)

By: /s/ Robert A. Bonner

Deputy Clerk

Date: February 4, 1994

Opinion for the Court filed by Circuit Judge Silberman.

Dissenting opinion filed by Chief Judge Mikva on March 1,

1994

37a

APPENDIX D

UNITED STATES COURT OF APPEALS

For The District of Columbia Circuit

NO. 92-1312 September Term, 1993

Frank J. Kelley, Attorney General of

The State of Michigan;

Department of Natural Resources,

Petitioners

William K. Reilly, Administrator,

U.S. Environmental Protection Agency,

Respondents

and consolidated Case No. 92-1314

FILED JUN 14 i994

Before: Mikva, Chief Judge; Silberman and

Henderson, Circuit Judges

ORDER

Upon consideration of the petitions for rehearing of

respondents and intervenors, it is

ORDERED, by the Court, that the petitions are

denied.

Per Curiam

For The Court:

RON GARVIN, CLERK

By: /s/ Robert A. Bonner

Deputy Clerk

Chief Judge Mikva would grant the petitions for rehearing.

Opinion for the Court filed by Circuit Judge Silberman

38a

UNITED STATES COURT OF APPEALS

For The District of Columbia Circuit

NO. 92-1312 September Term, 1993

Frank J. Kelley, Attorney General of

The State of Michigan;

Department of Natural Resources,

Petitioners

William K. Reilly, Administrator,

U.S. Environmental Protection Agency,

Respondents

and consolidated Case No. 92-1314

FILED JUN 14 1994

Before: Mikva, Chief Judge; Silberman, Buckley,

Williams,Ginsburg,Sentelle, Henderson,

Randolph and Rogers, Circuit Judges

ORDER

The Suggestions For Rehearing In Banc of

respondents and intervenors and theresponses thereto have

been circulated to the full court. No member of the Court

requested the taking of a vote thereon. Upon consideration

of the foregoing it is

ORDERED, by the Court in banc, that the

suggestions are denied.

Per Curiam

FOR THE COURT:

RON GARVIN, CLERK

BY:/s/ Robert Bonner

Deputy Clerk

38a(1)

Per Curiam

For The Court:

RON GARVIN,

CLERK

By: /s/ Robert A.

Bonner

Deputy

Clerk

Date: February 4, 1994

Opinion for the Court filed by Circuit Judge Silberman.

Dissenting opinion filed by Chief Judge Mikva on March 1,

1994

39a

APPENDIX E

STATUTORY AND REGULATORY PROVISIONS

- INVOLVED

1. The Comprehensive Envrionmental Response,

Compensation,and Liability Act (CERCLA or Superfund),

42 U.S.C. §9601 et seq., provides in relevant part:

42 U.S.C. §9601(20)(A). The term "owner or operator

means (i) in the case of a vessel, any person owning,

operating, or chartering by demise, such vessel, (ii) in the

case of an onshore facility or an offshore facility, any

person owning or operating such facility, and (iii) in the

case of any facility, title or control of which was conveyed

due to bankruptcy, foreclosure, tax delinquency,

abandonment, or similar means to a unit of State or local

government, any person who owned, operated or otherwise

controlled activities at such facility immediately

beforehand. Such term does 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.

42 U.S.C. §9605(a). Within one hundred and eighty days

after December 11, 1980, the President shall, after notice

and opportunity for public comments, revise and republish

the national contingency plan for the removal of oil and

hazardous substances, originally prepared and published

pursuant to section 1321 of Title 33, to reflect and

effectuate the responsibilities and powers created by this

chapter, in addition to those matters specified in section

1321(c)(2) of Title 33. ...

40a

42 U.S.C. §9613(a). Review of any regulation promulgated

under this chapter may be had upon application by any

interested person only in the Circuit Court of Appeals of the

United States for the District of Columbia. Any such applea-

tion shall be made within ninety days from the date of

promulgation of such regulations. Any matter with respect to

which review could have been obtained underthis subsection

shall not be subject to judicial review in any civil or criminal

proceeding for enforcement or to obtain damages or reovery

of response costs.

42 U.8.C. §9615. The President is authorized to debgate and

assign any duties or powers imposed upon or assigned to him

and to promulgate any regulations necessary to carry out the

provisions of this subchapter.

2. EPA’s Rule on "Lender Liability under CERCLA," 57

Fed.Reg. 18344 (April 29, 1992), 40 C.F.R. §300.1100,

provides in relevant part:

40 C.F.R. §300.1100 Security interest exemption.

A person who maintains indicia of ownership primarily to

protect a security interest in a vessel or facility, and who does

not participate in the management of the vesselor facility, is

not an "owner or operator" of such vessel or facility under

CZRCLA section 107(a)(1) or section 107(a)(2). ....

4la

(a) Indicia of ownership as used in section 101(20)(A) of

CERCLA means

(b) Primarily to protect a securityinterest for the purposes

one ee en rem a neennae

sftimariy to protect a security

of section 101(20)(A) of CERCLA means ....

participating in the management of a vessel or facility

means that the holder is engaging in acts of facility or

vessel management, as defined herein.

(1) Actions That Are Participation in Management.

Participation in the management of a facility means, for

the purpose of section 101(20)(A), actual participation in

the management or operational affairs of the vessel or

facility by the holder, and does not include the mere

capacity to influence, or ability to influence, or the

unexercised right to control facility operations. A holder is

participating in management, while the borrower is still in

possession of the vessel or facility encumbered by the

security interest, only if the holder either:

(i) Exercises decisionmaking control over the borrower’s

environmental compliance, such that the holder has

undertaken responsibility for the borrower’s hazardous

substance handling or disposal practices; or

(ii) Exercises control at a level comparable to that of a

manager of the

42a

borrower’s enterprise, such that the holder has assumed or

manifested responsibility for the overall management of

the enterprise encompassing the day-to-day

decisionmaking of the enterprise with the respect to:

(A) Environmental compliance or

(B) All, or substantially all, of the operational (as opposed

to financial or administrative) aspects of the enterprise

other than environmental compliance. Operational aspects

of the enterprise include functions such that of facility or

plant manager, operations manager, chief operating officer,

or chief executive officer.

Financial or administrative aspects include functions such

as that of credit manager, accounts payable/receivable

manager, personnel manager, controller, chief financial

officer, or similar functions.

(2) Actions ‘Tnat Are Not Participa- tion in

Management--(i) Actions at the Inception of the Loan or

Other Trans- action. No act or omission prior to the time

that indicia of ownership are held primarily to protect a

security interest constitutes evidence of participation in

management within the meaning of section 101(20)(A). A

prospective holder who undertakes or requires an

environmental inspection of the vessel or facility in which

indicia of ownership are to be held, or requires a

prospective borrower to

43a

clean up a vessel or facility or to comply or come into

compliance (whether prior or subsequent to the time that

indicia of ownership are held primarily to protect a security

interest) with any applicable law or regulation, is not by

such action considered to be participating in the vessel or

facility's management. Neither the statute nor this

regulation requires a holder to conduct or require an

inspection to qualify for the exemption, and the liability of

a holder cannot be based on or affected by the holder not

conducting or not requiring an inspection.

(ii) Policing and Workout. Actions that are consistent with

holding ownership indicia primarily to protect a security

interest do not constitute participation in management for

purposes of section 101(20)(A) of CERCLA. The authority

for the holder to take such actions may, but need not, be

contained in contractual or other documents specifying

requirements for financial, environmental, and other

warranties, covenants, conditions, representations or

promises from the borrower. Loan policing and workout

activities cover and include all activities up to foreclosure

and its equivalents, as provided in 40 CFR 300.1100(d)(1).

(A) Policing the Security Interest or Loan. A holder who

engages in policing activities prior to foreclosure will

remain within the exemption provided that the holder does

not by such actions participate in the management of the

44a

vessel or facility as provided in 40 CFR 300.1100(c)(1).

Such actions include, but are not limited to, requiring the

borrower to clean up the vessel or facility during the term

of the security interest; requiring the borrower to comply

or come into compliance with applicable federal, state, and

local environmental and other laws, rules and regulations

during the term of the security interest; securing or

exercising authority to monitor or inspect the vessel or

facility (including on-site inspections) in which indicia of

ownership are maintained, or the borrower’s business or

financial condition during the term of the security interest;

or taking other actions to adequately police the loan or

security interest (such as requiring a borrower to comply

with any warranties, covenants, conditions,

representations or promises from the borrower).

(B) Work Out. A holder who engages in work out activities

prior to foreclosure and its equivalents will remain within

the exemption provided that the holder does not by such

action participate in the management of the vessel or

facility as provided in 40 CFR 300.1100(c)(1). For purposes

of this rule, "work out” refers to those actions by which a

holder, at any time prior to foreclosure and its equivalents,

seeks to prevent, cure, or mitigate a default by the

borrower or obligor; or to preserve, or prevent the

diminution of, the value of the security. Work out activities

include, but are not limited to, restructuring or

renegotiating the

45a

terms of the security interest; requiring payment of

additional rent or interest; exercising forbearance;

requiring or exercising rights pursuant to anassignment of

accounts or other amounts owing to an obligor; requiring

or exercising rights pursuant to an escrow agreement

pertaining to amounts owing to an obligor; providing

specific or general financial or other advice, suggestions,

counseling, or guidance; and exercising any right or

remedy the holder is entitled to by law or under any

warranties, covenants, conditions, representations or

promises from the borrower.

(iii) Actions Taken Under CERCLA section 107(d)(1).

Notwithstanding 40 CFR 300.1100(c)(1), a holder does not

participate in the management of a vessel or facility by

taking any response action under section 107(d)(1) of

CERCLA or under the direction of an on-scene coordinator.

(d) Foreclosure on Property and Post- Foreclosure

Activities.--(1) Foreclosure. Indicia of ownership that are

held primarily to protect a security interest include legal or

equitable title acquired through or incident to foreclosure

and its equivalents. For purposes of this Subpart, the term

"foreclosure and its equivalents" includes purchase at

foreclosure sale; acquisition or assignment of title in lieu of

foreclosure; termination of a lease or other repossession;

acquisition of a right to title or possession; an agreement in

satisfaction of the obligation; or any other formal or

informal

46a

manner (whether pursuant to law or under warranties,

covenants, conditions, representations or promises from

the borrower) by which the holder acquires title to or

possession of the secured property. The indicia of

ownership held after foreclosure continue to be maintained

primarily as protection for a security interest provided that

the holder undertakes to sell, re-lease property held

pursuant to a lease financing transaction (whether by a

new lease financing transaction or substitution of the

lessee), or otherwise divest itself of the property in a

reasonably expeditious manner, using whatever

commercially reasonable means are relevant or appropriate

with respect to the vessel of facility, taking all facts and

circumstances into consideration, and provided that the

holder did not participate in management (as defined in 40

CFR 300.1100(c)) prior to foreclosure and its equivalents.

For purposes of establishing that a holder is seeking to sell,

re-lease property held pursuant to a lease financing

transaction (whether by a new lease financing transaction

or substitution of the lessee), or divest a vessel or facility in

a reasonably expeditious manner, the holder may use

whatever commercially reasonable means as are relevant

or appropriate with respect to the vessel or facility, or may

employ the means specified in 40 CFR 300.1100(d)(2)(i). A

holder that outbids, rejects or fails to act upon a written

bona fide, firm offer of fair consideration for the property,

as provided in 40 CFR 300.1100(d)(ii), is not considered to

hold indicia

47a

of ownership primarily to protect a security interest.

(2) Holding Foreclosed Property for Disposition and

Liquidation. older, who not participate in

management prior to foreclosure and its equivalents, may

sell, re-lease pro held pursuant to a lease financing

transaction (whether by a new lease financing transacton or

substitution of the lessee), liquidate, maintain business

activities, wind up operations, undertake any response action

under section 107(d)(1) of CERCLA or under the diretion of

an on-scene coordinator, and take measures to preserve.

protect or prepare the secured asset prior to sale or other

disposition. The holder may conduct these activities without

voiding the exemption, subject to the requirements of 40 CFR

300.1100(d)(1) and 300.1100(d)(2).

(i) A holder establishes that the ownership indicia maintained

following foreclosure and its equivalents continue to be held

primarily to protect a security interest by, within twelve

months following foreclosure, listing the vessel or facility

with a broker, dealer, or agent who deals with the type of

property in question, or by advertising the vessel or facility

as being for sale or disposition on at least a monthly basis in

either a real estate publication or a trade or other publication

suitable for the vessd or facility in question, or a newspaper

of general circulation (defined as one with a circulation over

10,000, or one suitable

48a

under any applicable federal, state, or local rules of court

for publication required by court order or rules of civil

procedure) covering the area where the property is located.

For purposes of this provision, the twelve-month period

begins to run from the time that the holder acquires

marketable title, provided that the holder, after the

expiration of any redemption or other waiting period

provided by law, was acting diligently to acquire

marketable title. If the holder fails to act diligently to

acquire marketable title, the twelve-monthperiod begins to

run on the date of foreclosure and its equivalents.

(ii) A holder that outbids, rejects, or fails to act upon an

offer of fair consideration for the vessel or facility

establishes that the ownership indicia in the secured

property are not held primarily to protect the security

interest, unless the holder is required, in order to avoid

liability under federal or state law, to make a higher bid, to

obtain a higher offer, or to seek or obtain an offer in a

different manner.

(A) Fair consideration, in the case of a holder maintaining

indicia of ownership primarily to protect a senior security

interest in the vessel or facility, is the value of the security

interest as defined in this section. The value of the security

interest is calculated as an amount equal to or in excess of

the sum of the outstanding principal (or comparable

amount in the case of a lease that constitutes a security

inter

49a

est) owed to the holder immediately preceding the

acquisition of full title (or possession in the case of

property subject to a lease financing transaction) pursuant

to foreclosure and its equivalents, plus any unpaid interest,

rent or penalties (whether arising before or after

foreclosure and its equivalents), plus all reasonable and

necessary costs, fees, or other charges incurred by the

holder incident to work out, foreclosure and its

equivalents, retention, maintaining the business activities

of the enterprise, preserving, protecting and preparing the

vessel or facility prior to sale, re-lease of property held

pursuant to a lease financing transaction (whether by a

new lease financing transaction or substitution of the

lessee) or other disposition, plus response costs incurred

under section 107(d)(1) of CERCLA or at the direction of

an on-scene coordinator; less any amounts received by the

holder in connection with any partial disposition of the

property, net revenues received as a result of maintaining

the business activities of the enterprise, and any amounts

paid by the borrower subsequent to the acquisition of full

title (or possession in the case property subject to a lease

financing transaction) pursuant to foreclosure and its

equivalents; In the case of a holder maintaining indicia of

ownership primarily to protect a junior security interest,

fair consideration is the value of all outstanding higher

priority security interests plus the value of the security

interest held by the junior holder, each calculated as set

forth in the preceding

50a

sentence.

(B) Outbids. rejects. or fails to upon an offer of fair

consideration means that the holder outbids, rejects or fails

to act upon within 90 days of receipt of a written, bona

fide, firm offer of fair consideration for the property

received at. any time after six months following foreclosure

and its equivalents. A "written, bona fide, firm offer" means

a legally enforceable, commercially reason able, cash offer

solely for the foreclosed vessel or facility, including all

material terms of the transaction, from a ready, willing,

and able purcheser who demonstrates to the holder’s

satisfaction the ability to perform. For purposes of this

provision, the six-month period begins to run from the

time that the holder acquires a marketable title, provided

that the holder, after the expiration of any redemption or

other waiting period provided by law, was acting diligently

to acquire marketable title. If the holder fails to act

diligently-to acquire marketable title, the six-month period

begins to run on the date of foreclosure and its equivalents.

(3) Holder’s Basis of CERCLA Liabil- ity Independent of

Status as Owner or Operator. (i) Provided that the holder

did not participate in management prior to foreclosure and

its equivalents and the holder complies with the

requirements of 40 CFR 300.1100(d)(1)-(d)(2), during the

period following foreclosure and its equivalents a holder in

possession of a

5la

vessel or facility can incur liability CERCLA in connection

with its activities at such foreclosed vessel or facility only

by arranging for disposal or treatment of a hazardous

substance, as provided by CERCLA section 107(a)(3), or by

accepting for transportation and disposing of hazardous

substances at a facility selected by the holder, as provided

by CERCLA section 107(a)(4).

(ii) Following foreclosure and its equivalents,.a foreclosing

holder that directs or undertakes activities under CERCLA

section 107(d)(1) or at the direction of an on-scene

coordinator at the foreclosed vessel or facility does not

incur liability for such activities.

solace aia

~92-

is here also.®

Finally, one of the truly remarkable

aspects of EPA's rule is that it pur-

ports to bind parties such as Michigan

in litigation to which EPA is not even a

6The Supreme Court also has refused to

apply Chevron in a number of other con-

texts. See e.g., Ardestani v. I.N.S.,

U.S. 3; 112 &. Ct. 515, 526 (1991)

(because the Equal Access to Justice Act

is not administered by a particular

agency, deference is inappropriate);

Litton Financial Printing Division v.

NLRB, 501 U.S. 190, 201-203 (1991)

(refusing to defer to NLRB in its inter-

pretation of a contract). See also Dyk

and Schenk, Exceptions to Chevron, 18

A.B.A. Sec. Admin. Law News No. 2, l, 13

(1993) (citing United States v. Fausto,

484 U.S. 439 (1988) (whether agency

decisions are judicially reviewable);

Pierce v. Underwood, 487 U.S. 552 (1988)

(whether an agency must pay its oppo-

nents attorneys' fees); United States v.

S.A. Empresa de Viacao Aerea Rio

Grandense, 467 U.S. 797 (1984) (whether

agency action was within the Federal

Tort Claims Act); and CIA v. Sims, 471

U.S. 159 (1985) (whether agency docu-

ments must be disclosed under the

Freedom of Information Act).

o393-

party. 57 Fed. Reg. 18,368 - 18,369

(April 29, 1992). As the Court of

Appeals noted, in such a circumstance

"it seems somewhat strained to claim

that Congress could be thought to have

implicitly delegated to EPA the policy-

making role that Chevron presumes...."

Kelley, 25 F.3d at 1092 (emphasis in

Original); Pet. App. 34a. Given the

lack of an implicit or explicit delega-

tion of authority to promulgate the

lender liability rule, the opinions

below reaffirm the vitality of Chevron

and Adams Fruit.

-34-

CONCLUSION AND RELIEF SOUGHT

The opinions of the lower court do

not conflict with any decision of any

other federal appeals court. Moreover,

the Petition does not present an issue

of vital importance in need of this

Court's resolution. Indeed, EPA, a

party below, has chosen not to seek a

writ. Finally, the opinion below fits

neatly within this Court's jurispru-

dence. For all the foregoing reasons,

Respondents respectfully urge this Court

to deny the Petition for Writ of

Certiorari.

Dated:

~3S—

Respectfully submitted,

FRANK J. KELLEY

Attorney General

Thomas L. Casey

Solicitor General

Counsel of Record

P.O. Box 30212

Lansing, MI 48909

Telephone: (517) 373-1124

A. Michael Leffler

Jeremy M. Firestone

Assistant Attorneys General

Attorneys for Respondents

November, 1994

APPENDIX

TABLE OF CONTENTS

CERCLA Excerpts eoeeeeeeoeeeeeeseeeee la-8a

-~la-

42 U.S.C. § 9606 [CERCLA § 106)

(b)(2)(A) Any person who receives

and complies with the terms of any order

issued under subsection (a) of this

section may, within 60 days after

completion of the required action, peti-

tion the President for reimbursement

from the Fund for tie reasonable costs

of such action, plus interest. Any

interest payable under this paragraph

Shall accrue on the amounts expended

from the date of expenditure at the same

rate as specified for interest on

investments of the Hazardous Substance

Superfund established under subchapter A

of chapter 98 of Title 26.

(B) If the President refuses to

grant all or part of a petition made

under this paragraph, the petitioner may

-2a-

within 30 days of receipt of such

refusal file an action against the

President in the appropriate United

States district court seeking reimburse-

ment from the Fund.

graph (D), to obtain reimbursement, the

petitioner shall establish by a prepon-

derance of the evidence that it is not

liable for response costs under section

9607(a) of this title and that costs for

which it seeks reimbursement are reason-

able in light of the action required by

the relevant order.

(D) A petitioner who is liable for

response costs under section 9607(a) of

this title may also recover its reason-

able costs of response to the extent

that it can demonstrate, on the adminis-

-~3a-

trative record, that the President's

decision in selecting the response

action ordered was arbitrary and capri-

cious or was otherwise not in accordance

with law. Reimbursement awarded under

this subparagraph shall include all

reasonable response costs incurred by

the petitioner pursuant to the portions

of the order found to be arbitrary and

capricious or otherwise not in accor-

dance with law.

(ZE) Reimbursement awarded by a court

under subparagraph (C) or (D) may

include appropriate costs, fees, and

other expenses in accordance with sub-

sections (a) and (d) of section 2412 of

Title 28.

-4a-

42 U.S.C. § 9607 [CERCLA § 107]

§ 9607(a) Notwithstanding any other

provision or rule of law, and subject

only to the defenses set forth in sub-

section (b) of this section-- .

(1) the owner and operator of a ves-

sel 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,

(3) any person who by contract,

agreement, or otherwise arranged for

disposal or treatment, or arranged with

a transporter for transport for disposal

or treatment, of hazardous substances

owned or possessed by such person, by

-Sa-

any other party or entity, at any facil-

ity or incineration vessel owned or

operated by another party or entity and

containing such hazardous substances,

and

(4) any person who accepts or

accepted any hazardous substances for

transport to disposal or treatment

facilities, incineration vessels or

sites selected by such person, from

which there is a release, or a threat-

ened release which causes the incurrence

of response costs, of a hazardous

substance, shall be liable for--

(A) all costs of removal or remedial

action incurred by the United States

Government or a State or an Indian tribe

not inconsistent with the national con-

tingency plan;

-~6a-

(B) any other necessary costs of

response incurred by any other person

consistent with the national contingency

plan;

-7Ja-

42 U.S.C. § 9613 [CERCLA § 113]

(b) Jurisdiction; venue

Except as provided in subsections

(@) and (h) of this section, the United

States district courts shal] have exclu-

Sive original jurisdiction Over all con-

troversies arising under this chapter,

without regard to the citizenship of the

parties or the amount in controversy.

Venue shall lie in any district in which

the release or damages occurred, or in

which the defendant resides, may be

found, or has his Principal office. For

the purposes of this section, the Fund

Shall reside in the District of

Columbia.

(j)(2) Standard

In considering objections raised in

any judicial action under this chapter,

the court shall uphold the President's

decision in selecting the responsible

action unless the objecting party can

demonstrate, on the administrative

record, that the decision was arbitrary

and capricious or otherwise not in

accordance with law.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.