Bankers in Mississippi are in an uproar over a decision in a lender liability case that, if sustained, would hold banks responsible for sharing in environmental clean-up costs incurred by a borrower.
The decision, which involves the $140 million-asset Citizens State Bank in Magee, was last week appealed to the Mississippi Supreme Court.
On the legislative front, bankers in the state have rallied behind a bill that would protect lenders from being held liable in such circumstances. The bill was recently passed by the Senate and should be voted on by the House this week.
"This is our number one priority issue," said Mac Deaver, executive director of the Mississippi Bankers Association. "We're trying to short- circuit the court action by getting a state statute passed that shows this decision was way off base."
A state judge ruled in February 1994 that Citizens is partially responsible for the clean-up costs associated with the failed Gulf Coast Sulfur Co., because it loaned the company $200,000. Since the loan enabled the company to operate, the bank should be partially responsible for the consequences, the judge reasoned.
Not long after the loan was issued in 1988, the company, which was operating on land leased from a railroad company, went bankrupt.
The bank and the railroad company subsequently found a buyer. But on the very day the deal was struck, in 1989, a pile of sulfur on the site caught fire, thereby squelching the agreement and scaring off other potential buyers. Clean-up costs mounted to about $160,000, bank officials said.
Four years later the railroad, now known as Kansas Southern, sued in an attempt to get Citizens to pay $60,000 of the clean-up costs.
To the dismay of bankers throughout the state, the court ruled that Citizens should pay 10%, or $6,000, of what Missouri-based Kansas Southern asked.
"We were amazed that it (the court) assessed any of the costs," said Odean Busby, chairman of Citizens. "It set such a bad precedent."
The railroad company, however, was not satisfied. Last week it appealed the lower court's decision to the state supreme court, arguing that the bank should pay more.
"There was not a heck of a lot of money involved here," said B. Clint Gardner, director of government relations for the Mississippi Bankers Association. "But this was just a ridiculous ruling, if you take it to the extremes. With their (the court's) reasoning, a bank could lend money to buy a car, and then if it gets in a wreck, the bank could be sued."