Like damage from a radioactive spill, the Fleet Factors case goes on and on.

Thirteen years ago, a Georgia textile company went broke and left its lender, a unit of Fleet Financial Group, to contend with a contaminated factory. This week, the latest round of legal arguments over responsibility for the cleanup bill for this site will be filed in U.S. District Court in Statesboro, Ga.

The legal issues raised in the case have spurred congressional hearings, an appeal to the U.S. Supreme Court, and, ultimately, rules issued by the Environmental Protection Agency in April.

Opening the Door to Legislation

But the protracted deliberations on the case - at the district court level again after a hearing on the merits was ordered by a higher court - point up the limits of the EPA rules and may spur Congress to consider legislation on the issue again, experts said.

At the time, the case shows that banks cannot take too much comfort in the EPA rules and must continue to treat environmental risk as a normal part of the business.

The EPA rules were supposed to establish once and for all an, exemption from environmental liability for lenders. The agency attempted to negate a two-year-old circuit court decision in the Fleet case that alarmed banks by broadening lender liability.

Referring to language in the court decision, the rules specified that "the mere capacity or ability to influence" a borrower's management of hazardous waste does not make a lender liable for cleanup costs. The rules also listed the actions a lender can take without triggering liability.

Despite the rules, the government is continuing to argue in Georgia that the Fleet unit should be held liable as an owner and operator of the site - for actions the bank contends that it took merely to protect its loan to Swainsboro Print Works Inc.

"The argument's the same as before," said William A. Browner, general counsel to Fleet.

"The EPA rule that went through was supposed to forestall a change in legislation," Mr. Browner said, arguing that the current situation illustrates more clearly than ever the need for rewriting the environmental liability law.

"It's just the government being cute," said Thomas J. Greco, a lawyer for the American Bankers Association, which has led the charge for amending the Comprehensive Environment Response, Compensation, and Liability Act, better known as the Superfund Law.

In addition to being ignored by the EPA's own lawyers, he said, the rule interpreting the law is being challenged by the Chemical Manufacturers Association and the state of Michigan. Both argue that the rule gives unfair advantage to banks over others who could be held liable for cleanup costs.

Foreclosure Bypassed

Justice Department lawyers who represent the EPA declined to be interviewed about the case. They argued in a preliminary brief filed last month that Fleet took numerous actions beyond what was necessary to protect its interests as a lender. These ranged from auctioning off drums of toxic chemicals to ordering the dismantling of equipment, during which asbestos was exposed.

The EPA's brief seeks $900,000 in legal costs in addition to the $400,000 it cost to clean up the textile factory. The brief notes language in the EPA rules that specifically "imposes liability where a holder [of a loan] moves from oversight to instances of actual facilities management."

The brief also notes that Fleet, although it seized equipment, never actually foreclosed on the real estate. Thus, exemptions established in the rule for lenders who are trying to dispose of foreclosed property do not apply, the government argues.

|Financial Issues'

Ironically, while banking lobbyists continue to seek Superfund amendments, the industry may be coming to grips with the problem on its own.

"Environmental issues are financial issues, nothing more," said Daniel J. Sitomer, an environmental specialist with the New York law firm of Brown & Wood.

Mr. Sitomer noted a pronounced change in bankers' attitudes from two years ago, when some lenders would not foreclose because they were afraid of hidden environmental costs. "Banks are seeking advice on how to define the financial implications of environmental risk," he said.

The Insurance Angle

Mr. Sitomer also noted the growing availability of pollution liability insurance, as the marketplace adapts to the reality of environmental risk.

Indeed, Fleet recently became the first bank to require real estate borrowers to buy environmental liability insurance.

But Mr. Sitomer said the legal dispute in Georgia continues to have national implications. "Fleet Factors demonstrates that the end result has to be an exception carved out for lenders."

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