United States v. Fleet Factors Corp.
901 F.2d 1550, 1990 WL 57874 (1990)
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Rule of Law:
A secured creditor may be liable for environmental cleanup costs under CERCLA if it participates in the financial management of a facility to a degree indicating a capacity to influence the corporation’s treatment of hazardous wastes, regardless of whether it actually participated in day-to-day operations or waste disposal decisions.
Facts:
- In 1976, Swainsboro Print Works (SPW), a cloth printing facility, entered into a factoring agreement with Fleet Factors Corporation (Fleet), giving Fleet a security interest in SPW's facility, equipment, inventory, and fixtures.
- In 1979, SPW filed for Chapter 11 bankruptcy but continued its factoring agreement with Fleet.
- In early 1981, Fleet stopped advancing funds, and on February 27, 1981, SPW ceased operations.
- Following the shutdown, Fleet allegedly increased its involvement by requiring approval for shipping goods, setting prices for inventory, dictating employee layoffs, and controlling access to the facility.
- In May 1982, Fleet foreclosed on some of SPW's inventory and equipment and contracted with Baldwin Industrial Liquidators to conduct an auction.
- Fleet then hired Nix Riggers to remove the remaining equipment, allegedly giving Nix a 'free hand' in the process, which concluded by December 1983.
- In January 1984, the Environmental Protection Agency (EPA) inspected the site and found 700 drums of toxic chemicals and 44 truckloads of asbestos-containing material.
Procedural Posture:
- The United States sued Fleet Factors Corporation in the U.S. District Court for the Southern District of Georgia to recover environmental cleanup costs.
- Fleet moved for summary judgment, arguing it was exempt from liability as a secured creditor.
- The district court denied Fleet's motion for summary judgment, finding that a genuine issue of material fact existed regarding the extent of Fleet's participation in the management of the facility.
- The district court, on its own motion, certified the summary judgment issues for an interlocutory appeal.
- Fleet (as appellant) appealed the denial of its summary judgment motion to the U.S. Court of Appeals for the Eleventh Circuit.
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Issue:
Does a secured creditor lose its statutory exemption from CERCLA liability if its involvement in the management of a facility is sufficiently broad to support the inference that it could affect hazardous waste disposal decisions, even without participating in day-to-day operations?
Opinions:
Majority - Kravitch, Circuit Judge
Yes. A secured creditor loses its exemption from liability under CERCLA if its involvement in the management of the facility is sufficiently broad to support the inference that it could affect hazardous waste disposal decisions if it so chose. The court rejected a narrower standard that would require participation in day-to-day operational management, finding that such a reading would render the statutory exemption meaningless. The court reasoned that the phrase 'participating in the management' is broader than the term 'operator' and that Congress intended to hold liable secured creditors who become overly involved in a debtor's affairs. The court established that a creditor's capacity to influence decisions about hazardous waste, inferred from its pervasive involvement in financial management, is sufficient to trigger liability. This standard encourages lenders to conduct environmental due diligence before extending credit and to monitor their debtors' environmental compliance, aligning with CERCLA's remedial purpose of placing cleanup costs on those responsible for the problem.
Analysis:
This decision significantly expanded the scope of lender liability under CERCLA by establishing the influential 'Fleet Factors' standard. It moved beyond the previously accepted 'day-to-day management' test to a much broader 'capacity to influence' test, creating considerable uncertainty and concern within the lending industry. The ruling heightened the importance of environmental due diligence in commercial lending and incentivized lenders to monitor borrowers' environmental practices. The backlash from the financial community eventually led to regulatory clarification by the EPA and statutory amendments by Congress to limit the scope of lender liability established in this case.
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