WASHINGTON - The U.S. Supreme Court Tuesday refused to hear an appeal of a major lender-liability case, forcing the industry to focus on Congress for relief.
In American Bankers Association v. Kelley, the Chemical Manufacturers Association had challenged an Environmental Protection Agency rule giving banks that foreclose on contaminated properties greater protection from lawsuits.
The U.S. Court of Appeals for the District of Columbia threw out the rule in February 1994, declaring that the EPA exceeded its authority when it promulgated the liability exemption.
"It didn't say the rule was wrong," said American Bankers Association deputy general counsel Michael Crotty, alluding to the appeals court. "It just said the EPA didn't have the authority."
That rule protected banks from a 1991 federal appeal court decision, which said banks could be liable for environmental cleanups even if they had no control over the polluting company.
Now that the Supreme Court has refused to review the decision, the industry must focus on Congress, said James P. O'Brien, a law partner at Chapman & Cutler in Chicago.
"It means our remedy is back on the Hill," said Karen Thomas, regulatory counsel to the Independent Bankers Association of America. "That is where we will have to marshal our resources."
Committees in the House and Senate approved a bill last year extending liability protection as part of the Superfund Reform Act. But the bill died in the final days of the congressional session.
Mr. O'Brien said the industry should have more success this year.
"We have every confidence that a bill will succeed," Mr. O'Brien said. "Our legislation will stand alone and be enacted by Congress regardless of what happens to Superfund."
Without protection, banks will not lend to gas stations and other businesses that could contaminate properties, he said.
The controversy arises from an existing federal environmental law, which exempts lenders from liability when they act solely to protect their security interest. But the law does not define what a bank can or cannot do to protect its interest. For example, could a bank still be covered if it appointed an official to oversee a gas station whose owner is in default?
Federal appeals courts in Boston and Richmond, Va., already have taken a broad view of the rule. But, the federal appeals court with jurisdiction over Florida, Alabama, and Georgia went the other way, taking a restrictive view.