Kelley v. Environmental Protection Agency

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) allowed private parties and the United States Environmental Protection Agency (EPA) (defendant) to bring civil actions against owners and operators of hazardous-waste sites to recover cleanup costs. Section 107 of CERCLA, which defined who may be liable for cleanup costs, provided that a secured creditor was exempt from liability as an owner or operator as long as the creditor did not participate in the management of the site. Uncertainty as to the scope of the exemption and the level of management required for liability chilled lenders from foreclosing on properties, issuing loans, or using certain properties as collateral. The EPA urged Congress to clarify the liability provision, but the effort failed. The EPA then issued a regulation with a framework of tests for determining whether a lender may be liable under CERCLA, including a list of actions a lender could take without incurring liability. A petition for review of the regulation was brought in the United States Court of Appeals for the District of Columbia Circuit by Michigan and the Chemical Manufacturer Association (plaintiffs), who, as potential CERCLA litigants, did not want limits on their ability to sue lenders. The potential CERCLA litigants asserted that the EPA did not have the authority to define lender liability under CERCLA, that only federal courts could determine liability, and that the regulation was contrary to the plain language of CERCLA. The EPA countered that Congress’s intent to delegate authority to the EPA to define § 107 liability was evident in several provisions of CERCLA giving the EPA general authority to implement CERCLA, seek enforcement, and determine the responsibilities of private parties. Alternatively, the EPA argued that the regulation was an interpretive rule that was entitled to deference from the courts.