Court Opinion

ID: 195167
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:34:36+00
Date Added: 2024-06-11T09:42:59.657407
License: Public Domain

United States Court of Appeals
                    For the First Circuit
                                         

No. 93-1699

                    NORTHEAST DORAN, INC.,

                    Plaintiff, Appellant,

                              v.

                      KEY BANK OF MAINE,

                     Defendant, Appellee.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

                  FOR THE DISTRICT OF MAINE

         [Hon. Morton A. Brody, U.S. District Judge]
                                                   

                                         

                            Before

                 Torruella, Selya, and Stahl,

                       Circuit Judges.
                                     

                                         

Alfred  C. Frawley with  whom Peter  D. Lowe and  Brann & Isaacson
                                                                  
were on brief for appellant.
David B.  Van Slyke with whom  Michael Kaplan, Jonathan S.  Piper,
                                                                 
and Preti, Flaherty, Beliveau & Pachios were on brief for appellee.
                                   

                                         

                       January 28, 1994
                                         

          STAHL, Circuit Judge.   In its complaint, Northeast
                              

Doran, Inc. ("Doran") alleged that Key Bank of Maine ("Key"),

mortgagee and subsequent vendor of the property at issue, was

liable   for   clean-up   costs   under   the   Comprehensive

Environmental  Response,   Compensation  and   Liability  Act

("CERCLA"),  as  amended  by  the  Superfund  Amendments  and

Reauthorization Act  of 1986  ("SARA").   The district  court

dismissed  the  complaint  for  failure  to  state  a  claim,

reasoning that Key's knowledge of potential contamination did

not render it liable under CERCLA.  We affirm.

                              I.
                                

           FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                                                   

          In December 1989, Ed Harmon & Sons, Inc. ("Harmon")

purchased property  located at the Skowhegan  Industrial Park

in  Skowhegan,  Maine  ("the property").    The  purchase was

financed with  a mortgage from  Key Bank.   In June  of 1990,

Doran leased the property from Harmon.  

          In July of  1991, with  Harmon unable  to meet  its

mortgage payments, Key Bank sought and received a Judgment of

Foreclosure and Order of Sale  from the Superior Court of the

State of Maine  and made plans to  auction the property.   On

October  21, 1991,  Key hired  an  independent consultant  to

conduct a Maine Superlien Site  Assessment ("the assessment")

of  the property.   Two  weeks  later, on  November 7,  1991,

without  having received the  results of the  assessment, Key

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completed its  disclosure statement  for use  in the  auction

prospectus.   Key  stated in  that  document that  it had  no

knowledge of any hazardous materials on the property.

          On November 18,  1991, Key received the  results of

the   assessment,   which    showed   potential   groundwater

contamination on the property.  Key took no steps to make the

results of  the  assessment known  to  bidders prior  to  the

auction.

          At the  auction on  November 21,  1991, Doran,  who

remained in possession  of the property, entered  the highest

bid  and  signed  a  purchase  and  sale  agreement  for  the

property.    When Doran  sought  financing from  Key  for its

purchase of the  property, Key refused, citing  for the first

time the result of the assessment.  Doran, apparently able to

obtain other financing,  purchased the property from  Key via

quitclaim deed on December 17, 1991.

          After purchasing  the property, Doran  notified the

Maine  Department  of  Environmental  Protection  ("DEP")  of

potential  contamination on the property.  DEP assessed costs

against  Doran, the  "owner" of  the  property under  CERCLA.

Doran brought  an action in the United  States District Court

for the  District of  Maine, seeking  a declaratory  judgment

that  Key was  liable  for clean-up  costs  on the  property.

Among other things,  Doran argued that Key,  unlike similarly

situated  secured creditors,  was  not entitled  to  CERCLA's

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"security  interest holder"  exemption and  that  a right  of

action   existed   due  to   Key's  knowledge   of  potential

contamination prior to and at the time of sale.  The district

court  dismissed Doran's  complaint for  failure  to state  a

claim upon  which relief could  be granted, finding  that Key

was  not  a  liable  party  under  CERCLA  and  its  relevant

amendments.  We affirm.

                             II.
                                

                          DISCUSSION
                                    

          "We  review  a  Rule  12(b)(6)  dismissal de  novo,
                                                            

crediting  all allegations in  the complaint and  drawing all

reasonable inferences favorable  to the plaintiff."   Heno v.
                                                          

FDIC, 996 F.2d 429,  430 (1st Cir. 1993); see also Scheuer v.
                                                          

Rhodes, 416 U.S. 232, 236 (1974).  
      

          Our  analysis  begins with  CERCLA's  definition of

liable parties.  CERCLA, 42  U.S.C.   9607(a), provides  that

liability for  environmental  clean-up  shall  attach,  inter
                                                             

alia, to:
    

          (1) the owner and operator of a vessel or
          a facility,

          (2)  any  person  who  at  the   time  of
          disposal of any hazardous substance owned
          or operated  any facility  at which  such
          hazardous substances were disposed of . .
          . .

          While   Key,   having   obtained  a   judgment   of

foreclosure on the property, might  appear at first glance to

be an "owner"  or "operator" of the property  for purposes of

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section  9607(a),  CERCLA's   definition  provisions  clearly

dictate otherwise.  Under 42  U.S.C.   9601(20)(A), the terms

"owner" or "operator" "do not include a person, who,  without

participating  in the  management of  a  vessel or  facility,

holds  indicia of ownership primarily to protect his security

interest in the  vessel or facility."  As  we recently stated

in  Waterville Indus., Inc.  v. Finance  Auth. of  Maine, 984
                                                        

F.2d 549, 552 (1st Cir.  1993), "the purpose of the statutory

exception, apparent from its language  and statutory context,

is to shield from liability those `owners' who are in essence

lenders holding  title to  the property  as security  for the

debt."   Moreover,  "[s]o  long  as  the  [security  interest

holder] makes a reasonably prompt  effort to divest itself of

its unwelcome  ownership, we  think continued  coverage under

the exception serves its basic  policy:  to protect bona fide

lenders and to avoid imposing liability on owners who are not

in fact  seeking to  profit from  the investment  opportunity

normally presented by prolonged ownership."  Id. at 553.
                                                

          Doran  does not allege, nor could it on the record,

that Key's effort  to divest itself of title  to the property

was  anything less  than  "reasonably  prompt."   Id.    More
                                                     

importantly, in support  of its allegation that  Key held the

property  for  a  purpose  other  than  as  security for  its
                                      

mortgage  on the property, Doran  cites only the existence of

the  assessment,  and  Key's  withholding  of  its   results.

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Standing  alone, however, the existence of a site assessment,

even   one   which   reveals   the  existence   of   possible

environmental  contamination and which  is concealed from the

eventual purchaser, is  insufficient to remove a  holder from

the   "security  interest   holder"   exception  in   section

9601(20)(A).  See Waterville Indus., 984 F.2d at 554 (holding
                                   

that   security   interest   holder  exception   in   section

9601(20)(A) applied  despite fact  that security  holder sold

the property "without making full disclosure of the hazardous

wastes or  of  notices of  violation  sent to  [the  security

interest holder]"); see also United  States v. McLamb, 5 F.3d
                                                     

69, 70-74 (4th  Cir. 1993) (similar, where  security interest

holder "learned of the previous oil spill at [property] after

the  foreclosure  but  prior   to  selling  the  property").1

Accordingly, Doran's  complaint fails  to allege  any set  of

facts under which Key could be liable under CERCLA.

          Doran  also  argues  that  the  security   interest

exception  should  not   apply  in  view   of  42  U.S.C.    

                    

1.  Recent  regulations  promulgated  by  the  United  States
Environmental Protection Agency (EPA), though prospective and
not  dispositive  in  the instant  case,  also  indicate that
security interest holders do not compromise their eligibility
for section  9601(20)(A) status  by conducting  environmental
audits.   See  40  C.F.R.  300.1100;  Final  Rule  on  Lender
             
Liability Under CERCLA, 57 Fed. Reg. 18,344, 18,353 (Apr. 29,
1992).   See also  McLamb, 5  F.3d at  73  & n.8;  Waterville
                                                             
Indus., 984 F.2d at 553 & n.6.
      

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9601(35)(C),2  which   holds  liable  those   defendants  who

"owned" and then transferred property with "actual knowledge"

of contamination.  As noted  above, however, Key was never an

"owner" as that term is defined by CERCLA.  See supra  at pp.
                                                     

4-6.   Nor do we find  any support for Doran's  argument that

section 9601(35)(C)  somehow renders liable parties who would

otherwise fall  under the security interest  holder exception

of  section  9601(20)(A).3    Thus,  we  find  no  means  for

applying section 9601(35)(C) to Key.

                    

2.  Section 9601(35) provides:

          Nothing in  this paragraph or  in section
          9607(b)(3) of  this title  shall diminish
          the liability  of any  previous owner  or
          operator  of  such   facility  who  would
          otherwise be  liable under  this chapter.
          Notwithstanding  this  paragraph,  if the
          defendant  obtained  actual  knowledge of
          the  release or  threatened release  of a
          hazardous substance at such facility when
          the defendant owned the real property and
          then  subsequently transferred  ownership
          of the property to another person without
          disclosing such knowledge, such defendant
          shall be treated  as liable under section
          9607(a)(1) of this  title and no  defense
          under  section 9607(b)(3)  of this  title
          shall be available to such defendant.

3.  Rather,   the   cases  cited   by  Doran   apply  section
9601(35)(C)  solely to  parties who  were  otherwise "owners"
under section 9607(a).  See, e.g.,  Westwood Pharmaceuticals,
                                                             
Inc. v. National Fuel Gas  Distrib. Corp., 964 F.2d 85, 90-91
                                         
(2nd  Cir. 1992) (holding that section 9601(35)(C) applies to
"owners"  under both sub-section  (1) and sub-section  (2) of
section  9607(a)); see also Fallowfield Dev. Corp. v. Strunk,
                                                            
1993 WL 157723,  *5 (E.D. Pa.) ("In order  for [plaintiff] to
establish its  prima facie  case .  .  . it  must prove  that
[defendants] are within one of  the [four] classes of persons
subject to liability under section 9607(a).").

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                              7

          In  sum, here, as in Waterville Indus., 984 F.2d at
                                                

554, the right of contribution  is a statutory one that turns

solely on  Key's status as  an "owner," a status  defeated by

the  security interest  exception.   Any  other claims  which

Doran  may  have  against Key  are  appropriately  brought in

another forum.  Cf. id.; McLamb, 5 F.3d at  73-74 (finding no
                               

requirement of "commercial reasonableness" under CERCLA).  

                             III.
                                 

                          CONCLUSION
                                    

          For  the  foregoing  reasons,  the  order   of  the

district court  dismissing Doran's complaint  for failure  to

state a claim is 

          Affirmed.
                   

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