[Federal Register Volume 59, Number 112 (Monday, June 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14173]
[[Page Unknown]]
[Federal Register: June 13, 1994]
_______________________________________________________________________
Part III
Environmental Protection Agency
_______________________________________________________________________
40 CFR Parts 280 and 281
Underground Storage Tanks--Lender Liability; Proposed Rule
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 280 and 281
[FRL-4895-3]
RIN 2050-AD67
Underground Storage Tanks--Lender Liability
AGENCY: Environmental Protection Agency.
ACTION: Proposed rule.
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SUMMARY: The Environmental Protection Agency (EPA) is proposing this
rule under the Resource Conservation and Recovery Act (RCRA), Subtitle
I--Regulation of Underground Storage Tanks, 42 U.S.C. 6901 et seq., to
limit the regulatory obligations of persons maintaining indicia of
ownership in a petroleum underground storage tank (UST) or UST system
primarily to protect a security interest. The rule is proposed in
response to petitions received by the Agency in connection with the
rulemaking related to lender liability under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA), 42
U.S.C. 9601 et seq. (See 57 FR 18349).
The Agency is proposing conditions under which certain security
interest holders may be exempted from the RCRA Subtitle I corrective
action, technical, and financial responsibility regulatory requirements
that apply to an UST owner and operator. (See 40 CFR part 280.)
DATES: Written comments on this proposed rule must be submitted on or
before August 12, 1994.
ADDRESSES: Written comments on today's proposal should be addressed to
the docket clerk at the following address: U.S. Environmental
Protection Agency, OUST Docket (5405), 401 M Street, SW., Washington,
DC 20460. The Docket is located at 401 M Street, SW., Room 2616. One
original and two copies of comments should be sent and identified by
regulatory docket reference number UST 3-16. The docket is open from 9
a.m. to 4 p.m., Monday through Friday, excluding Federal holidays.
Docket materials may be reviewed by appointment by calling (202) 260-
9720. Copies of docket materials may be made at a cost of $0.15 per
page.
FOR FURTHER INFORMATION CONTACT: For further information about this
proposal, contact the RCRA/Superfund Hotline, U.S. Environmental
Protection Agency, Washington, DC. 20460, (800) 424-9346 (toll-free) or
(703) 412-9810 (local). For the hearing impaired, the number is (300)
553-7672 (toll-free), or (703) 412-3323 (local). For technical
information on this proposal, contact Shelley Fudge in the EPA Office
of Underground Storage Tanks at (703) 308-8886.
SUPPLEMENTARY INFORMATION: The contents of today's proposed preamble
are listed in the following outline:
1. Background
II. Description of the UST Regulatory Program
A. UST Technical Standards
1. Leak Prevention
2. Leak Detection
3. Release Reporting
4. Closure
5. Notification, Reporting, and Recordkeeping
B. Corrective Action Requirements
C. Financial Responsibility Requirements
D. State Program Approval Regulations
E. Scope of the UST Program
III. The UST Security Interest Exemption and Intent of Today's
Proposed Rule
A. Overview
B. Legal Authority
C. Liability of a Holder as an Owner of an Underground Storage
Tank or Underground Storage Tank System
1. Petroleum Production, Refining, and Marketing
2. Indicia of Ownership
3. Primarily to Protect a Security Interest
4. ``Holder'' of Ownership Indicia
5. Participating in Management
D. Liability of a Holder as an Operator of an Underground
Storage Tank or Underground Storage Tank System
1. Pre-Foreclosure Operation
2. Post-Foreclosure Operation
3. Lenders in Foreclosure Upon the Effective Date of the Rule
4. Release Reporting Requirements Following Foreclosure
E. Actions Taken to Protect Human Health and the Environment
IV. Financial Responsibility Requirements
V. State Program Approval
VI. Economic Analysis
VII. Regulatory Assessment Requirements
A. Executive Order 12866
B. Regulatory Flexibility Act
C. Paperwork Reduction Act
I. Background
EPA is proposing to establish regulatory criteria specifying which
RCRA Subtitle I requirements are applicable to a secured creditor.
Section 9003(h)(9) of RCRA exempts from the definition of ``owner,''
for purposes of section 9003(h)--EPA Response Program for Petroleum,
those persons who, without participating in the management of the UST
or UST system, and who are not otherwise engaged in petroleum
production, refining, and marketing, maintain indicia of ownership in
an UST or UST system primarily to protect a security interest. Those
most affected by this ``security interest exemption'' include private
lending institutions or other persons that guarantee loans secured by
real estate containing an UST or UST system, or that acquire title to,
or other indicia of ownership in, a contaminated UST or UST system.\1\
However, the security interest exemption is not limited solely to
lending institutions; it potentially applies to any person whose
indicia of ownership in an UST or UST system is maintained primarily to
protect a security interest.
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\1\Under the laws of some states, an interest in real property
may include an interest in USTs or UST systems located on that
property. See Sunnybrook Realty Co. Inc. v. State of New York,
Kesbec, Inc. v. State of New York, Claim Nos. 32844, 33125, 15 Misc.
2d 739; 182 N.Y.S. 2d 983. Of course, the loan documents may
specifically include or exclude USTs as collateral securing the
obligation.
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The RCRA subtitle I security interest exemption not only affects
secured creditors but also UST and UST system owners who seek capital
through the private lending market. Today's proposed rule will provide
a regulatory exemption from corrective action regulatory requirements
for those persons who provide secured financing to UST and UST system
owners. EPA expects this rule, in conjunction with the statutory
exemption in section section 9003(h)(9), to encourage the extension of
credit to credit-worthy UST owners. At present, EPA believes that
concerns over environmental liability are making a significant number
of lenders reluctant to make loans to otherwise credit-worthy owners
and operators of USTs. The free flow of credit to UST owners (many of
whom are small entities that may rely on secured financing mechanisms
for capital) is expected to assist UST owners in meeting their
obligations to upgrade, maintain, or otherwise comply with RCRA
subtitle I and other environmental requirements. Conversely, the lack
of such capital may adversely affect the ability of an UST owner to
meet its obligations under Subtitle I, with concomitant adverse
environmental impacts from USTs and UST systems that are out of
compliance due to the lack of financing for the UST owner and operator.
(For a more detailed discussion, please refer to the Regulatory
Background Document for this proposed rule, located in the OUST Docket
at 401 M Street, SW., room 2616, Washington, DC 20460.)
The Agency is also concerned that if otherwise credit-worthy UST
owners and operators are unable to obtain financing to perform leak
detection tests, or to upgrade or replace deficient tanks, the market
for UST equipment could be adversely affected, thereby limiting the
availability and/or affecting the cost of such equipment. In addition,
a lack of adequate capital could produce a ripple effect which would
cut across other portions of the UST-related industrial sector. Based
on letters received from UST equipment manufacturers, EPA believes that
this sector has suffered as a direct result of the capital squeeze on
UST owners and operators. The Agency is further concerned that many UST
equipment manufacturers may find it increasingly difficult to sustain
their production of UST equipment. Unnecessary constrictions on the
free flow of capital for UST compliance and improvements could force
companies to abandon their production of UST equipment or to close
altogether, and it may have adverse impacts on the environment by
making the investment or development of new UST technological
innovations more difficult.
The preamble to this proposed rule is structured as follows: The
following section briefly describes the UST program. This section is
followed by a discussion of this proposed rule, which includes a
description of the various options lenders may exercise both pre- and
post-foreclosure with respect to regulatory compliance for a secured
UST or UST system. Proposed regulatory text concludes this proposed
rule.
II. Description of the UST Regulatory Program
Based on the Agency's study of the banking community's lending
practices and discussions with representatives of both lenders and
borrowers, EPA believes that the lending community in general is not
particularly familiar with the UST statutory scheme and regulatory
program. Because UST and UST systems are likely to be used as
collateral in securing loans to borrowers, the Agency believes that it
is appropriate and useful to briefly describe the UST program in the
preamble of this proposed rule. The following discussion is general in
nature and is intended to provide a framework for lenders or others to
better understand the scope and intent of the program; it is not
intended to be a substitute for the regulations themselves.
Under the Hazardous and Solid Waste Amendments of 1984, Congress
responded to the increasing threat to groundwater posed by leaking
underground storage tanks by adding subtitle I to the Resource
Conservation and Recovery Act. Subtitle I required EPA to develop a
comprehensive regulatory program for USTs storing petroleum or
hazardous substances. Congress directed the Agency to publish
regulations that would require owners and operators of new tanks and
tanks already in the ground to prevent and detect leaks, cleanup leaks,
and demonstrate that they are financially capable of cleaning up leaks
and compensating third parties for resulting damages.
EPA's UST regulations, 40 CFR parts 280 and 281, apply to any
person who owns or operates an UST or UST system. The term ``owner'' is
defined in the statute generally to mean any person who owns an UST
used for the storage, use, or dispensing of substances regulated under
subtitle I of RCRA (which includes both petroleum and hazardous
substances) (section 9001(3), 42 U.S.C. 6991(3)). Owners are
responsible for complying with the ``technical requirements,''
``financial responsibility requirements,'' and ``corrective action
requirements'' specified in the statute and regulations. These
requirements are intended to ensure that USTs are managed and
maintained safely, so that they will not leak or otherwise cause harm
to human health and the environment. In addition, should a leak occur,
the requirements provide that the owner is responsible for addressing
the problem.
These same requirements apply to any person who ``operates'' an UST
system. The term ``operator'' is very broad and means ``any person in
control of, or having responsibility for, the daily operation of the
underground storage tank'' (section 9001(4), 42 U.S.C. 6991(4)). As
with owners, there may be more than one operator of a tank at a given
time. Each owner and operator has obligations under the statute and
regulations. In this respect, it is important to understand that a
person may have obligations under subtitle I either as an owner or as
an operator, or both.
The following subsections describe briefly each of the major
components of the UST regulatory program applicable to persons who own
or operate USTs and UST systems.
A. UST Technical Standards
The technical standards of 40 CFR part 280 referred to here
include: Subpart B--UST systems: Design, Construction, Installation,
and Notification (including performance standards for new UST systems,
upgrading of existing UST systems, and notification requirements);
Subpart C--General Operating Requirements (including spill and overfill
control, corrosion protection, reporting and recordkeeping); Subpart
D--Release Detection; Sec. 280.50 (reporting of suspected releases) of
Subpart E--Release Reporting, Investigation, and Confirmation; and
Subpart G--Out of Service UST Systems (including temporary and
permanent closure). These regulations impose obligations upon UST
owners and operators, separate from the subtitle I corrective action
requirements discussed in Section II. B of this preamble.
1. Leak Prevention
Before EPA regulations were issued, most tanks were constructed of
bare steel and were not equipped with release prevention or detection
features. 40 CFR 280.21 requires UST owners and operators to ensure
that their tanks are protected against corrosion and equipped with
devices that prevent spills and overfills no later than December 22,
1998. Tanks installed before December 22, 1988 must be replaced or
upgraded by fitting them with corrosion protection and spill and
overfill prevention devices to bring them up to new-tank standards.
USTs installed after December 22, 1988 must be fiberglass-reinforced
plastic, corrosion-protected steel, a composite of these materials, or
determined by the implementing agency to be no less protective of human
health and the environment and must be designed, constructed, and
installed in accordance with a code of practice developed by a
nationally recognized association or independent testing laboratory.
Piping installed after December 22, 1988 generally must be protected
against corrosion in accordance with a national code of practice. All
owners and operators must also ensure that releases due to spilling or
overfilling do not occur during product transfer and that all steel
systems with corrosion protection are maintained, inspected, and tested
in accordance with Sec. 280.31.
2. Leak Detection
In addition to meeting the leak prevention requirements, owners and
operators of USTs must use a method listed in Secs. 280.43 through
280.44 for detecting leaks from portions of both tanks and piping that
routinely contain product. Deadlines for compliance with the leak
detection requirements have been phased in based on the tank's age: The
oldest tanks, which are most likely to leak, had the earliest
compliance deadlines.
3. Release Reporting
UST owners and operators must, in accordance with Sec. 280.50,
report to the implementing agency within 24 hours, or another
reasonable time period specified by the implementing agency, the
discovery of any released regulated UST substances, or any suspected
release. Unusual operating conditions or monitoring results indicating
a release must also be reported to the implementing agency.
4. Closure
Owners or operators who would like to take tanks out of operation
must either temporarily or permanently close them in accordance with 40
CFR part 280, subpart G--Out-of-Service UST Systems and Closure. When
UST systems are temporarily closed, owners and operators must continue
operation and maintenance of corrosion protection and, unless all USTs
have been emptied, release detection. If temporarily closed for three
months or more, the UST system's vent lines must be left open and
functioning, and all other lines, pumps, manways, and ancillary
equipment must be capped and secured. After 12 months, tanks that do
not meet either the performance standards for new UST systems or the
upgrading requirements (excluding spill and overfill device
requirements) must be permanently closed, unless a site assessment is
performed by the owner or operator and an extension is obtained from
the implementing agency. To close a tank permanently, an owner or
operator generally must: Notify the regulatory authority 30 days before
closing (or another reasonable time period determined by the
implementing agency); determine if the tank has leaked and, if so, take
appropriate notification and corrective action; empty and clean the
UST; and either remove the UST from the ground or leave it in the
ground filled with an inert, solid material.
5. Notification, Reporting, and Recordkeeping
UST owners who bring an UST system into use after May 8, 1986 must
notify state or local authorities of the existence of the UST and
certify compliance with certain technical and other requirements, as
specified in Sec. 280.22. Owners and operators must also notify the
implementing agency at least 30 days (or another reasonable time period
determined by the implementing agency) prior to the permanent closure
of an UST. In addition, owners and operators must keep records of
testing results for the cathodic protection system, if one is used;
leak detection performance and upkeep; repairs; and site assessment
results at permanent closure (which must be kept for at least three
years).
B. Corrective Action Requirements
Owners and operators of UST systems containing petroleum or
hazardous substances must investigate, confirm, and respond to
confirmed releases, as specified in Secs. 280.51 through 280.67. These
requirements include, where appropriate: Performing a release
investigation when a release is suspected or to determine if the UST
system is the source of an off-site impact (investigation and
confirmation steps include conducting tests to determine if a leak
exists in the UST or UST system and conducting a site check if tests
indicate that a leak does not exist but contamination is present);
notifying the appropriate agencies of the release within a specified
period of time; taking immediate action to prevent any further release
(such as removing product from the UST system); containing and
immediately cleaning up spills or overfills; monitoring and preventing
the spread of contamination into the soil and/or groundwater;
assembling detailed information about the site and the nature of the
release; removing free product to the maximum extent practicable;
investigating soil and groundwater contamination; and, in some cases,
outlining and implementing a detailed corrective action plan for
remediation.
C. Financial Responsibility Requirements
The financial responsibility regulations (40 CFR part 280, subpart
H) require that UST owners or operators demonstrate the ability to pay
the costs of corrective action and to compensate third parties for
injuries or damages resulting from the release of petroleum from USTs.
The regulations require all owners or operators of petroleum USTs to
maintain an annual aggregate of financial assurance of $1 million or $2
million, depending on the number of USTs owned. Financial assurance
options available to owners and operators include: Purchasing
commercial environmental impairment liability insurance; demonstrating
self-insurance; obtaining guarantees, surety bonds, or letters of
credit; placing the required amount into a trust fund administered by a
third party; or relying on coverage provided by a state assurance fund.
D. State Program Approval Regulations
Subtitle I of RCRA allows state UST programs approved by EPA to
operate in lieu of the federal program. EPA's state program approval
regulations under 40 CFR part 281 set standards for state programs to
meet.
E. Scope of the UST Program
There are certain types or classes of tanks that are exempt from
all or part of subtitle I's requirements. Specifically excluded by
statute are: Farm and residential tanks of 1,100 gallons or less
capacity used for storing motor fuel for noncommercial purposes; tanks
used for storing heating oil for consumptive use on the premises where
stored; tanks stored on or above the floor of underground areas (such
as basements or tunnels); septic tanks; systems for collecting
stormwater or wastewater; flow-through process tanks; emergency spill
and overfill tanks that are expeditiously emptied after use; and tanks
holding 110 gallons or less (42 U.S.C. 6991(1)).
In addition, and of particular importance to today's proposal, the
statute excludes one type of potential ``owner'' from the corrective
action requirements applicable to owners. Specifically, the statute
excludes from the definition of owner any person ``who, without
participating in the management of an UST, and otherwise not engaged in
petroleum production, refining, and marketing, holds indicia of
ownership primarily to protect the owner's security interest in the
tank'' (RCRA section 9003(h)(9), 42 U.S.C. 6991b(h)(9)). This statutory
provision is intended to exempt from cleanup responsibility a person
whose only connection with a tank is as the holder of a security
interest; i.e., a bank or other secured creditor who has extended
credit to a borrower (commonly the tank's owner) and who has in return
secured the loan or other obligation by taking a security interest in
the tank. EPA has promulgated regulations governing corrective action
under subtitle I. (See 40 CFR part 280, Secs. 280.51 through 280.67.)
The regulation proposed today addresses the requirements of subtitle I
that are applicable to a person who holds a security interest in a tank
(a ``security holder'' or merely ``holder'') from the time that the
person extends the credit up through and including foreclosure and re-
sale. As described in this proposed rule, a holder may face obligations
either as an owner or as an operator, depending upon the specific
activities undertaken by the holder.
III. The UST Security Interest Exemption and Intent of Today's
Proposed Rule
A. Overview
The security interest exemption under subtitle I, section
9003(h)(9) of RCRA, 42 U.S.C. 6991b(h)(9), provides:
As used in this subsection, the term ``owner'' does not include
any person who, without participating in the management of an
underground storage tank and otherwise not engaged in petroleum
production, refining, and marketing, holds indicia of ownership
primarily to protect the owner's security interest in the tank.
Limited legislative history exists concerning the RCRA subtitle I
security interest exemption. No guidance or other indication is
available concerning the types of activities that Congress considered
to be consistent with the subtitle I security interest exemption, or
about the types of activities that Congress considered to be
impermissible participation in an UST or UST system's management.
The statutory exemption is limited to liability for corrective
action at petroleum-contaminated sites. Since the subtitle I security
interest exemption applies only to the corrective action requirements
for petroleum--Part 280 Subpart F and portions of subpart E, one
interpretation of the statute could hold that the holder is not exempt
from complying with other portions of the statute and regulations
applicable to an ``owner'' of a tank. These other parts include 40 CFR
part 280, subparts B, C, D, E (Sec. 280.50 only), and G (hereafter
referred to as the ``UST technical standards'' for purposes of this
rule), and Subpart H--Financial Responsibility. However, the statute is
silent with respect to a holder's liability for these requirements
solely as a consequence of having ownership rights in a tank primarily
to protect a security interest. The Agency does not believe that these
limited ownership rights rise to the level of full ``ownership''
sufficient to make the holder an ``owner'' of the tank, as that term is
used in section 9001(3) of RCRA subtitle I. Therefore, EPA is
proposing, under its broad rulemaking authority in section 9003, that a
holder who meets the criteria specified in this proposed rule (i.e.,
whose only connection with the tank is as the bona fide holder of a
security interest in the UST or UST system) is not subject to the UST
technical standards and financial responsibility requirements otherwise
applicable to a tank owner. EPA believes that this is both appropriate
under the Agency's rulemaking authority and consistent with
Congressional intent in providing the section 9003(h)(9) exemption for
those persons who provide only financing to owners of a tank.
Accordingly, a qualifying holder will not be required to comply with
the full panoply of EPA regulations implementing subtitle I that apply
to tank owners prior to or following foreclosure, provided that the
requirements of today's proposed rule are satisfied.
With respect to a holder's potential to be an ``operator'' of a
tank prior to foreclosure, consistent with the provisions of this
proposed rule, the holder typically will not be involved in the day-to-
day operations of the tank, and will therefore not incur liability as
an ``operator.''2 By foreclosing, however, the holder takes
affirmative action with respect to the tank and displaces the borrower;
therefore, by necessity, the holder has taken ``control of . . . [and]
responsibility for . . .'' the tank, and is therefore a tank operator
under the definition at 42 U.S.C. 6991(4). However, under today's
proposed rule, a foreclosing holder's responsibility for corrective
action as an operator is limited in certain circumstances: In general,
a holder's obligations would be limited under the provisions of this
rule where the foreclosed-on tank is no longer storing petroleum, or
where the holder itself empties the tank within a certain time period.
In these circumstances, while a holder is an operator and therefore
subject to the UST program's technical requirements and other
obligations, a holder may remain exempt from the corrective action
requirements and satisfy the technical requirements by exercising one
of the options for compliance described in Section III. D. 2 of this
preamble. These options allow a holder to satisfy its regulatory
obligations as an ``operator'' by undertaking specified minimally
burdensome and environmentally protective actions to secure and protect
the UST or UST system. On the other hand, a holder who operates a tank
by, for example, storing or dispensing product following foreclosure
will be subject to the full range of requirements applicable to any
person operating a tank (including corrective action requirements).
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\2\Of course, a lender which has control of or responsibility
for the daily operation of a tank would be an ``operator'' under
section 9001(4), and therefore subject to all requirements
applicable to an operator of a tank, including corrective action.
Similarly, such acts may also constitute ``participation in the
management'' of the tank, which would void the section 9003(h)(9)
exemption and obligate the lender to comply with these same
technical, financial, and corrective action requirements as an
owner.
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In developing today's proposal, EPA examined the potential
obligations under subtitle I of government entities that act as
conservators or receivers of assets acquired from failed lending and
depository institutions, such as the Federal Deposit Insurance
Corporation (FDIC) and Resolution Trust Corporation (RTC). Where a
government entity or its designee is acting as a conservator or
receiver, EPA interprets the security interest exemption in RCRA
subtitle I section 9003(h)(9) to preclude the imposition of the
insolvent estate's liabilities against the government entity acting as
the conservator or receiver, and considers the liabilities of the
institution being administered to be limited to the institution's
assets. The situation of a conservator or receiver of a failed or
insolvent lending institution is analogous to that of a trustee
(particularly a trustee in bankruptcy) that is administering an
insolvent's estate and, in accordance with those principles, the
insolvent's liabilities are to be satisfied from the estate being
administered and not from the assets of the conservator or receiver.
Therefore, satisfaction of an estate's debts or liabilities would not
reach the general assets of the FDIC, the RTC, those of any other
government entity acting in a similar capacity, or those of a private
person acting on behalf of the government conservator or receiver.
B. Legal Authority
The legal basis for this proposed rule is the Agency's broad
authority to issue regulations interpreting and implementing the
provisions of RCRA subtitle I at issue in this proposal. Section
9003(b), 42 U.S.C. 6991b(b) provides EPA with authority to ``promulgate
release detection, prevention, and correction regulations applicable to
all owners and operators of underground storage tanks, as may be
necessary to protect human health and the environment.''3
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\3\The recent decision by the U.S. Court of Appeals for the D.C.
Circuit in Kelley, et al. v. EPA, No. 93-1312 (Feb. 4, 1994) does
not apply to or affect the rule the Agency is proposing today. The
Kelley decision vacated the Agency's rule on lender liability under
CERCLA, which interpreted a statutory exemption under CERCLA which
is similar to that under RCRA Subtitle I, because ``EPA lack[ed]
statutory authority to restrict by regulation private rights of
action arising under the statute. . .'' Kelley, slip op. at 3. As
noted above, Sec. 9003 expressly confers upon EPA a broad rulemaking
authority; to the extent that the grants of rulemaking authority
were not sufficiently explicit under CERCLA, such is not the case
under RCRA Subtitle I.
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The Agency is proposing to define the regulatory terms under which
a secured creditor may, consistent with the statutory exemption, avoid
responsibility for corrective action as an owner and operator of an
underground storage tank, as well as proposing an exemption from
certain financial responsibility requirements. As discussed elsewhere
in this preamble (See Section III.D), the statutory exemption from
corrective action liability addresses only owners of underground
storage tanks, while the statute and EPA's implementing regulations
extend liability to both owners and operators. The Agency believes that
without promulgating a rule under EPA's broad grant of rulemaking
authority applying the protection found in the statutory security
interest exemption to operators as well as owners, the statutory
exemption may be rendered virtually meaningless, since an owner of an
UST is also typically an UST operator. EPA does not believe that
Congress, in creating section 9003(h)(9), intended for an otherwise
exempt holder of a security interest to nonetheless fall subject to
corrective action obligations as an operator. As such, EPA's exercise
of its rulemaking authority in the proposed rule is appropriate and,
perhaps, needed to fully effectuate the purpose of the statute.
In addition, the Agency has explicit rulemaking authority to, in
its discretion, exempt certain classes of owners and operators from
corrective action obligations (i.e., holders of security interests as
described in this proposal). Section 9003(b) permits the Agency, in
promulgating regulations under subtitle I, to make distinctions in its
UST regulations between types or classes of tanks, based upon, inter
alia, ``the technical capability of the owners and operators.'' Because
security interest holders are typically not as a general matter engaged
in the operation and maintenance of USTs (and thus do not possess the
technical capacity of most UST owners and operators), EPA does not
believe that requiring them to comply with highly detailed technical
requirements is appropriate where requiring them to do so is not
necessary for protection of human health and the environment.
Furthermore, the Agency believes an exemption from these regulatory
requirements is appropriate in the context of this proposed rule, where
an exemption will serve, albeit indirectly, to advance the goals of
subtitle I by making credit more available and thus aiding in the
implementation of tank upgrade requirements.
However, this authority is not open-ended, as section 9003(a)
requires EPA to promulgate regulations that are protective of human
health and the environment. Without compromising the level of
protectiveness established by the UST program, EPA previously relied on
its section 9003(b) authority when it excluded a group of owners and
operators from RCRA subtitle I requirements in the final Financial
Responsibility Rule (53 FR 43322, Oct. 26, 1988). (In relevant part,
the preamble to the final Financial Responsibility Rule states: ``The
Agency does not interpret the Congressional intent of subtitle I to
preclude exempting any class of USTs from otherwise applicable
requirements when the Agency has determined that such requirements are
not necessary to protect human health or the environment.'') That rule
exempted states and the federal government from the UST financial
responsibility requirements since those entities were, as a class, able
to satisfy the purpose of the financial responsibility requirements in
the absence of regulation.
Similarly, for purposes of this proposal, EPA believes that it is
reasonable, in light of the purposes behind this proposal, to exempt a
holder from RCRA subtitle I corrective action requirements as an
operator if its USTs are empty and secure (as would be required under
today's proposal) or if the holder chooses to also engage in
environmentally beneficial activities (as discussed in Section III. E
of this preamble). Because of the requirements a holder must meet
before enjoying this proposed exemption, EPA's UST regulations will
satisfy the statutory requirement that they be protective of human
health and the environment.
C. Liability of a Holder as an Owner of an Underground Storage Tank or
Underground Storage Tank System
The following sections describe the key terms used in this proposed
rule. For the most part, these are also terms used in the section
9003(h)(9) security interest exemption. This section specifies the
activities that are not ``participating in the management'' of a tank
and which a holder may under today's proposal, engage in consistent
with subtitle I regulatory requirements.
1. Petroleum Production, Refining, and Marketing
``Production of petroleum'' includes, but is not limited to,
activities involved in the production of crude oil or other forms of
petroleum, as well as the production of petroleum products from
purchased materials, either domestically or abroad. ``Refining''
includes the processes of cracking, distillation, separation,
conversion, upgrading, and finishing of refined petroleum or petroleum
products. ``Marketing'' includes the distribution, transfer, or sale of
petroleum or petroleum products for wholesale or retail purposes. A
holder who stores petroleum products in USTs for on-site consumption
only, such as to provide heat to an office building or to refuel its
own vehicles, is not considered to be engaged in petroleum production,
refining, or marketing for the purposes of the UST regulatory program.
2. Indicia of Ownership
EPA is proposing that ``indicia of ownership'' means ownership or
evidence of an ownership interest in a petroleum UST or UST system. EPA
is not proposing to limit or qualify type, quality, or quantity of
ownership indicia that may be held by a person for the purpose of the
regulatory exemption. The nature of the ownership interest may vary
according to the type of secured transaction and the nature of the
holder's relationship (such as that of a guarantor or surety).
Accordingly, indicia of ownership may be evidence of any ownership
interest or right to an UST or UST system, such as a security interest,
an interest in a security interest, or any other interest in an UST or
UST system. For purposes of this proposed rule, examples of such
indicia include, but are not limited to, a mortgage, deed of trust, or
legal or equitable title obtained pursuant to foreclosure or its
equivalents, a surety bond, guarantee of an obligation, or an
assignment, lien, pledge, or other right to or form of encumbrance
against an UST or UST system. Accordingly, it is not necessary for a
person to hold actual title or a security interest in order to maintain
some indicia or evidence of ownership in an UST or UST system.
3. Primarily To Protect a Security Interest
EPA is proposing that the term ``primarily to protect a security
interest'' as used in this proposed regulation means a holder's indicia
of ownership are held primarily for the purpose of securing payment or
performance of an obligation. EPA intends this phrase to require that
the ownership interest be maintained primarily for the purpose of, or
primarily in connection with, securing payment or performance of a loan
or other obligation (a security interest), and not an interest in the
UST or UST system held for some other reason.
A security interest may arise pursuant to a variety of statutory or
common law financing transactions. While a security interest is
ordinarily created by mutual consent, such as a secured transaction
within the scope of Article 9 of the Uniform Commercial Code, there are
other means by which a security interest may be created, some of which
may or may not be the result of a consensual arrangement between the
parties to the transaction. In general, a transaction that gives rise
to a security interest within the ambit of this proposed rule is one
that provides the holder with recourse against an UST or UST system of
the person pledging the security; the purpose of the interest is to
secure the repayment of money, the performance of a duty, or of some
other obligation. See generally J. White & R. Summers, Handbook on the
Uniform Commercial Code Sec. 22 (2d Ed. 1980); Restatement of Security
(1941).
As a matter of general law, security interests may arise from
transactions in which an interest in an UST or UST system is created or
established for the purpose of securing a loan or other obligation, and
includes mortgages, deeds of trust, liens, and title held pursuant to
lease financing transactions. Security interests may also arise from
transactions such as sale-and-leasebacks, conditional sales,
installment sales, trust receipt transactions, certain assignments,
factoring agreements or accounts receivable financing agreements,
consignments, among others, provided that the transaction creates or
establishes an interest in an UST or UST system for the purpose of
securing a loan or other obligation.
In contrast, ``indicia of ownership'' held ``primarily to protect
[a] security interest'' do not include evidence of interests in the
nature of an investment in the UST or UST system, or an ownership
interest held primarily for any reason other than as protection for a
security interest. The person holding ownership indicia to protect a
security interest may have additional, secondary reasons for
maintaining the indicia in addition to protecting a security interest;
maintaining indicia for reasons in addition to protecting a security
interest may be consistent with the exemption and this proposed rule.
However, any such additional reasons must be secondary to protecting a
security interest in the secured UST or UST system. EPA recognizes that
lending institutions have revenue interests in the loan transactions
that create security interests; such revenue interests are not
considered to be investment interests, but are considered secured
transactions falling within the proposed security interest regulatory
exemption.
4. ``Holder'' of Ownership Indicia
A ``holder'' as used in this proposed regulation is a person who
maintains ownership indicia primarily to protect a security interest,
however acquired or held. The term ``holder'' includes the initial
holder (such as the loan originator) and any subsequent holder, such as
a successor-in-interest, subsequent purchaser on the secondary market,
loan guarantor, surety, or other person who maintains indicia of
ownership primarily to protect a security interest. The term also
includes any person acting on behalf of or for the benefit of the
holder, such as a court-appointed receiver or a holder's agent,
employee, or representative.
Finally, it should be noted that lending institutions, which
typically hold a large number of security interests, may also act in
some trustee, fiduciary, or other capacity with respect to an UST or
UST system. However, this rule does not address circumstances in which
a lending institution or any person acts as a trustee, or in a non-
lending capacity, or has any interest in an UST or UST system other
than as provided in this rule. Because this proposed regulation, as
well as the exemption in section 9003(h)(9), addresses only persons who
maintain a ``security interest,'' any discussion of persons with other
interests or involvement in an UST or UST system is beyond the scope of
this proposed rule. Of course, a trustee or other fiduciary with
respect to an UST or UST system (or any person who independent of the
status as trustee or fiduciary) who holds indicia of ownership in the
UST or UST system primarily to protect a security interest may fall
within this proposed security interest regulatory exemption.
5. Participating in Management
EPA proposes that, as used in this proposed rule, ``participation
in the management of an UST or UST system'' means the actual
involvement in the management or control of decisionmaking related to
the UST or UST system by the holder. Participation in management does
not include the mere capacity or unexercised right or ability to
influence UST or UST system operations. This proposal contains a list
of activities that is not all-inclusive, but which generally describes
activities that are not considered to be evidence that a holder is
participating in the management of an UST or UST system. In addition,
to address those other activities not specifically listed, a general
test of management participation is proposed. The general test
specifies that a holder is considered to be participating in
management, within the scope of this proposed regulatory exemption,
when it exercises decisionmaking control over the borrower's UST or UST
system, or where the holder assumes overall management responsibility
encompassing decisionmaking authority over the enterprise that includes
day-to-day operation of the UST or UST system.
Under the proposed rule, activities that are evidence that a holder
is participating in the management of an UST or UST system, and thus
acting outside the scope of this proposed regulatory exemption,
include: Exercising management control or decisionmaking authority over
operational aspects of an UST or UST system, or securing a lease
agreement, contractual arrangement, or employee relationship with any
other person to manage or operate the UST or UST system. Such
activities indicate that a holder is involved in or exercising
decisionmaking control of operations of the UST or UST system in which
the holder has a security interest.
For purposes of this proposed rule, a holder performing the
functions of a plant manager, operations manager, chief operating
officer, chief executive officer, and the like, of the facility or
business at which the UST is located is considered to be exercising
management control or decisionmaking authority over the operational
aspects of the UST or UST system and therefore, participating in
management, unless the responsibilities for the position specifically
exclude all UST responsibilities. Control over the operational aspects
of management should not be confused, however, with those activities
which constitute administrative or financial management or involvement
in non-operational activities. Such activities may be engaged in by a
holder in the course of managing a loan portfolio and do not exceed the
boundaries of the security interest exemption. Such activities may
include providing financial or other assistance, environmental
investigations or monitoring of the borrower's business and collateral,
engaging in ``loan work out'' activities, foreclosing on a secured UST
or UST system, winding down operations following foreclosure or its
equivalents, or divesting itself of the foreclosed-on property
containing an UST or UST system. These, as well as other actions
related to a holder's financial and administrative obligations, are
discussed in more detail in the following section.
a. General Test of Management Participation. It is not possible to
specifically cover in this proposed rule or any regulation every
conceivable situation in which a holder might act, or to make specific
provisions for every action that a holder might undertake that might
make it ineligible for the protection of the proposed security interest
regulatory exemption, voiding the security interest exemption. A
general test or standard of participation in an UST or UST system's
management has therefore been formulated to provide a framework within
which to assess the consistency of a holder's actions with the
limitations of the proposed regulatory exemption.
This proposal's two-prong test or standard of management
participation provides that while the borrower is still in possession
of an UST or UST system (i.e., pre-foreclosure), a holder participates
in the management of an UST or UST system only where the holder either
exercises decisionmaking control over the UST or UST system, or where
the holder's actions manifest or assume responsibility for the overall
management of the UST or UST system's day-to-day operations. The
general test adopts a functional approach which focuses on the holder's
actual decisionmaking involvement in the operational (as opposed to the
financial or administrative) affairs of the borrower's UST or UST
system. The first prong looks to whether the holder has exercised
decisionmaking control over the borrower's environmental compliance. If
so, the holder is ``participating in the management'' of the UST or UST
system as defined in the proposed rule. Similarly, the second prong
looks to where the holder is functioning as the overall manager by
exercising management at a level encompassing the borrower's
environmental obligations, or over all or substantially all of the
operational aspects of the borrower's enterprise, regardless of whether
decisionmaking control over compliance with the regulations governing
the UST or UST system has been explicitly assumed or not. This level of
actual involvement in the management of the UST or UST system is
sufficient to constitute management participation for purposes of this
proposed regulatory exemption.
Under the first prong of the general test, a holder cannot remain
within the scope of the exemption if it controls the borrower's
environmental compliance activities associated with the UST or UST
system. Under the second prong of the general test, the ability to
carve out environmental compliance responsibilities from other
operational aspects of the borrower's business or enterprise
demonstrates that the holder has manifested or assumed operational
responsibility at a management level that includes environmental
matters, and in doing so is considered to be participating in the UST
or UST system's management.
However, management participation does not include the unexercised
right to become involved in operational UST or UST system
decisionmaking. In other words, if the holder does not exercise its
rights to participate in the management of the UST or UST system, it
still may qualify for the security interest exemption. Whether the
exercise of rights that a holder might have--whether under contract or
other agreement (if any) or otherwise, including the enforcement of
loan terms and covenants or other rights--rises to the level of
participation in the UST or UST system's management is measured by
reference to the general test.
b. Actions that are not participation in management. Participation
in the following activities will not exclusively, in themselves, exceed
the bounds of this proposed regulatory exemption: Policing the loan,
undertaking financial work out with a borrower where the obligation is
in default or in threat of default, undertaking foreclosing and winding
up operations (as described later in this proposal), or preparing the
UST or UST system for sale or liquidation. In addition, the holder is
not considered to be participating in the management of the UST or UST
system by monitoring the borrower's business; by requiring or
conducting on-site investigations, including site assessments,
inspections, and audits, of the environmental condition of the UST or
UST system or the borrower's financial condition; by monitoring other
aspects of the UST or UST system considered relevant or necessary by
the holder; by requiring certification of financial information or
compliance with applicable duties, laws, or regulations, or by
requiring other similar actions, provided that the holder does not
otherwise participate in the management or operation of the UST or UST
system, as provided in this proposed regulation. Such oversight and
obligations of compliance imposed by the holder are not considered part
of the management of an UST or UST system. Although such requirements
and oversight may inform and perhaps strongly influence the borrower's
management of an UST or UST system, the holder is not considered to be
participating in management where the borrower continues to make
operational decisions concerning the UST or UST system.
The protected activities of a holder that are specifically
identified in this rule are consistent with the language of RCRA
section 9003(h)(9) and the overall purpose of subtitle I. Judicial
decisions construing the substantially similar language of CERCLA
section 101(20)(A) have addressed the issue of the appropriate degree
of a holder's involvement at a facility in which it held a security
interest (i.e., the standard of ``participation in management'').
Although the cases articulated the CERCLA standard using different
language, these cases generally held that the exemption is abrogated
once a holder has divested the borrower or debtor of its management
authority prior to foreclosure, such as when the holder becomes
involved in the facility's day-to-day operations, where it becomes
overly entangled in the affairs of the facility, or where its
involvement otherwise affects a facility's hazardous waste practices.
See United States v. Maryland Bank & Trust Co., 632 F. Supp. 573 (D.
Md. 1986); United States v. Mirabile, 15 Envtl. L. Rep. (Envtl. L.
Inst.) 20994 (E.D. Pa. 1985) (participation in financial management
insufficient to void the security interest exception to owner
liability); United States v. Fleet Factors Corp., 901 F.2d 1550 (11th
Cir. 1990), cert. denied, 111 S.Ct. 752 (1991).
Other cases interpreting the provisions of CERCLA established that
a holder's involvement in financially related matters--such as periodic
monitoring or inspections of secured property, loan refinancing and
restructuring, financial advice, and similar activities--will not void
the exemption. See Guidice v. BFG Electroplating and Manufacturing Co.,
732 F. Supp. 556 (W.D. Pa. 1989); United States v. Nicolet, 29 Envtl.
Rep. Cas. (BNA) 1851 (E.D. Pa. 1989); United States v. Mirabile, 15
Envtl. L. Rep. (Envtl. L. Inst.) 20994 (E.D. Pa. 1985) (participation
in financial management insufficient to void the security interest
exception to owner liability). The variations in the courts'
articulations of the standard, however, left unclear the precise degree
of involvement that could be undertaken without voiding the CERCLA
exemption. See, e.g., Fleet Factors Corp., 901 F.2d at 1557 (secured
creditor may incur CERCLA liability by participating in the financial
management of a facility to a degree indicating a capacity to influence
the corporation's treatment of hazardous waste); In re Bergsoe Metal
Corp., 910 F.2d 668 (9th Cir. 1990) (``there must be some actual
management of the facility before a secured creditor will fall outside
the exception [found in CERCLA section 101(20)(A)]''). However, more
recent cases under CERCLA have articulated a standard of management
participation that is substantially similar to that in this proposed
rule. See United States v. McLamb, 5 F. 3d 69 (4th Cir. 1993);
Waterville Industries, Inc. v. Finance Authority of Maine, 984 F 2d.
549 (1st Cir. 1993).
While the cases listed above describe particular activities and
draw a line between the actions of a holder that are and are not
evidence of management participation for purposes of CERCLA, there
remains uncertainty about the effect of activities commonly or
routinely undertaken by a holder in the course of managing a loan
secured by an UST or UST system. EPA believes that the uncertainty
created for holders examining their potential for liability under
CERCLA also exist when holders assess their potential obligations under
RCRA subtitle I. Therefore, this proposed rule is intended to specify
the compliance obligations for lenders when conducting normal business
activities and to define with greater precision the point at which a
holder's actions pass from loan oversight and advice to actual UST or
UST system management.
The following sections discuss and describe the specific activities
of a holder that the proposed rule defines as either activities that
indicate the holder's participation in the management of an UST or UST
system or those that are not instances of participation in the
management of an UST or UST system by a person holding indicia of
ownership primarily to protect a security interest in the UST or UST
system.
It bears repeating, however, that the activities identified in this
proposed rule do not specify the only activities that may be undertaken
by a holder without losing the protection of the proposed security
interest regulatory exemption, and one should not infer that activities
not specifically mentioned in this rule are automatically considered
evidence of participation in an UST or UST system's management--those
must be addressed on a case-by-case basis based on the general test
provided in this rule.
(1) Actions at the inception of the loan or other transaction
giving rise to a security interest. Actions undertaken by a holder
prior to the inception of a transaction in which indicia of ownership
are held primarily to protect a security interest are irrelevant with
respect to the general test of participation in management, and thus
are not considered evidence of participation in the management of the
UST or UST system. Thus, consultation and negotiation concerning the
structure and terms of the loan or other obligation, the payment of
interest, the payment period, and specific or general financial or
other advice, suggestions, counseling, guidance, or other actions at or
prior to the time that indicia of ownership are first held are not
considered evidence of participation in the management of the UST or
UST system for purposes of this proposed rule. Activities that take
place prior to holding indicia of ownership are not relevant for
determining whether the holder has participated in the management of
the UST or UST system after the time that the holder acquires indicia
of ownership.
In addition to such pre-loan involvement, a holder may determine
(whether for risk management or any other business purpose) to
undertake or require an environmental investigation (which could
include a site assessment, inspection, and/or audit) of an UST or UST
system securing the loan or other obligation. Such environmental
investigation may be undertaken by the holder, for example, or the
holder may require one to be conducted by another party (such as the
borrower) as a condition of the loan or other transaction. Neither RCRA
Subtitle I nor this proposed rule require that such an environmental
investigation be undertaken to qualify for the security interest
exemption, and the obligations of a holder seeking to avail itself of
the exemption cannot be based on or affected by the holder's not
conducting or not requiring an environmental investigation in
connection with the security interest. Similarly, a holder is not
engaged in management participation solely as a result of undertaking
or requiring an environmental investigation, and nothing in this
proposed rule should be understood to discourage a holder from
undertaking or requiring such an environmental investigation in
circumstances deemed appropriate by the holder. Because lender-
conducted or -required investigations of a borrower's business or
collateral are information-gathering in nature, such activities cannot,
alone, be considered to be management participation by a holder.
In the event that a pre-loan environmental investigation of a UST
or UST system reveals contamination, the holder may undertake any one
of a variety of responses that it deems appropriate: For example, the
holder may refuse to extend credit or to follow through with the
transaction or instead maintain indicia of ownership in other, non-
contaminated property as protection for the security interest.
Alternatively, a holder may determine that the risk of default is
sufficiently slight (or that the extent of contamination is minimal and
does not significantly affect the value of the UST or UST system as
collateral) to proceed to extend credit and maintain indicia of
ownership in the UST or UST system. Additionally, the holder may
require the borrower to clean up the contamination as a condition for
extending the loan. Such activities are not considered participation in
the UST or UST system's management, and a holder that knowingly takes a
security interest in contaminated collateral is not subject to
compliance with the RCRA Subtitle I corrective action regulatory
program solely on this basis.
(2) Policing the security interest or loan. A holder may undertake
actions that are consistent with holding ownership indicia primarily to
protect a security interest which include, but are not limited to, a
requirement that the borrower clean up a release from the UST or UST
system which may have occurred prior to or during the life of the loan
or security interest (as described in the last section); a requirement
of assurance of the borrower's compliance with applicable federal,
state, and local environmental or other laws and regulations during the
life of the loan or security interest; securing authority or permission
for the holder to periodically or regularly monitor or inspect the UST
or UST system in which the holder possesses indicia of ownership, or
the borrower's business or financial condition, or both; or to comply
with legal requirements to which the holder is subject; or other
requirements or conditions by which the holder is able to police
adequately the loan or security interest, provided that the exercise by
the holder of such other loan policing activities are not considered
evidence of management participation as provided in the proposed rule's
``general test'' of management participation.
The authority for the holder to take such actions may be contained
in contractual (e.g., loan) documents or other relevant documents
specifying requirements for financial, environmental, and other
warranties, covenants, and representations or promises from the
borrower. While the regulatory exemption in this proposed rule requires
that the actions undertaken by a holder in overseeing or managing the
loan or other obligation be consistent with those of a person whose
indicia of ownership in an UST or UST system is held primarily to
protect a security interest, a holder is not expected to be an insurer
or guarantor of environmental safety or quality at a secured UST or UST
system. The inclusion of environmental warranties and covenants is not
considered to be evidence of a holder's acting as an insurer or
guarantor, and a finding of ``management participation'' cannot be
premised solely on the existence of such terms or upon the holder's
actions that ensure that the UST or UST system is managed in an
environmentally sound manner. Since these actions are consistent with
holding indicia of ownership primarily to protect a security interest,
they are not considered to be participation in management in this
proposed rule.
(3) Loan work out. The holder may determine that actions need to be
taken with respect to the UST or UST system to safeguard the security
interest from loss. These actions may be necessary when, for example, a
loan is in default or threat of default, and are commonly referred to
as ``loan work out'' activities. ``Loan work out'' is largely an
undefined term but is generally understood in the financial community
to mean those activities undertaken to prevent, mitigate, or cure a
default by the obligor or to preserve or prevent the diminution of the
value of the security. Loan work out activities are recognized by EPA
as a common lender undertaking and, as such, these actions will not
take a holder outside of the scope of the security interest exemption
provided for in this proposed rule, provided that such actions are
consistent with the proposed general test of management participation.
When the holder undertakes loan work out activities, provides
financial or other advice, or similar support to a financially
distressed borrower, the holder will remain within the scope of the
proposed security interest regulatory exemption only so long as the
holder does not participate in management as provided by this proposed
rule's general test. Loan work out actions that are not evidence of
``participation in management'' include, but are not limited to:
Restructuring or renegotiating the terms of the security interest;
requiring payment of additional rent or interest; exercising
forbearance with regard to the security interest; requiring or
exercising rights pursuant to an assignment of accounts or other
amounts owing to an obligor; requiring or exercising rights pursuant to
an escrow agreement pertaining to amounts owing to an obligor;
providing specific or general financial or other advice, suggestions,
counseling, or guidance; and exercising any right or remedy the holder
is entitled to by law or under any warranties, covenants, conditions,
representations, or promises from the borrower.
(4) Foreclosure and sale or liquidation. Foreclosure and possession
of property for purposes of sale or liquidation are often the only
remedy the holder may have to secure performance of an obligation. The
process of foreclosure and sale or liquidation of a foreclosed-on UST
or UST system often results in the exclusive possession of the UST or
UST system by the holder and may require or result in the holder's
taking record title to the UST or UST system under the laws of some
states. For purposes of this proposed rule, the term ``foreclosure or
its equivalents'' includes foreclosure, purchase at foreclosure sale,
acquisition or assignment of title in lieu of foreclosure, acquisition
of a right to possession or title, or other agreement in settlement of
the loan obligation, or any other formal or informal manner by which
the holder acquires possession of the borrower's collateral for
subsequent disposition in partial or full satisfaction of the
underlying obligation. These actions are considered to fall within the
scope of the proposed regulatory exemption as necessary incidents to
holding ownership indicia primarily to protect a security interest.
However, a holder is under the coverage of the proposed rule and is not
considered an ``owner'' of a UST or UST system only so long as the
holder's acquisition pursuant to foreclosure is reasonably necessary to
ensure satisfaction or performance of the obligation, is temporary in
nature, and occurs while the holder is actively seeking to sell or
otherwise divest the foreclosed-on UST or UST system.
To meet the requirements of the proposed rule's exemption from
regulatory compliance as an ``owner'' following foreclosure, a holder
must be acting consistently with the security interest exemption's
requirement that the ownership indicia maintained by the holder
continue to be held primarily to protect the security interest. Where a
holder's actions indicate that it is not seeking to sell or liquidate
the secured assets, the exemption is voided because such actions are
akin to holding the asset for investment purposes. This proposed
regulation describes circumstances under which a holder may avoid being
considered an ``owner'' of property on which it forecloses for purposes
of certain Subtitle I regulations. It is only by complying with the
provisions of this proposed rule that the limited ownership rights of a
security holder do not rise to the level of full ``ownership''
sufficient to make the security holder an ``owner'' of the tank, as
that term is used in EPA's UST regulations. The proposed rule first
provides a set of general criteria for offering an UST or UST system
for sale, and when and under what circumstances an offer of purchase
may or may not be rejected. In addition, even though a holder is
permitted to use whatever means are appropriate and available to sell
or otherwise divest itself of foreclosed-on property, as a measure of
certainty this proposed rule contains an objective test that, if
followed by a holder, establishes that the holder is meeting the
general obligation to divest itself of a foreclosed-on UST or UST
system in a reasonably expeditious manner. EPA believes that this
aspect of the proposed rule is consistent with the RCRA Subtitle I
security interest exemption.
In general, under this proposal, a foreclosing holder must, in
order to maintain consistency with the security interest exemption,
seek to sell or otherwise divest itself of foreclosed-on property in a
reasonably expeditious manner using whatever commercially reasonable
means are available or appropriate, taking all facts and circumstances
into account. A holder cannot, under the terms of the proposed rule,
reject or refuse offers for the property that represent fair
consideration for the asset and remain within the proposed regulatory
exemption. A holder that outbids or refuses offers from parties
offering fair consideration for the property establishes that the
property is no longer being held primarily to protect a security
interest. The terms of the bid are relevant for this purpose, and a
holder is not required to accept offers that would require it to breach
duties owed to other holders, the borrower, or other persons with
interests in the property that are owed a legal duty. In addition, the
term ``fair consideration'' refers to an all cash offer, which is
intended to ensure that this proposed rule would not require a holder
to accept a bid that contains unacceptable conditions, such as
requirements for indemnification agreements, non-cash offers,
``bundled'' offers, etc. This proposed provision should not be read to
require that a holder may accept only cash offers, however; a holder is
always free to accept any offer satisfactory to the holder. The exact
requirement that would be imposed by this proposed regulation is that a
holder may not reject a cash offer of fair consideration for the
foreclosed-on property. If it does, or if it outbids others offering
fair consideration, then the holder would, under today's proposal, be
considered to be an owner of the UST or UST system in the same manner
as any other purchaser.
This proposed rule's provisions defining ``fair consideration'' and
specifying when the foreclosing holder may reject or outbid offers for
the property are formulated to reflect the amount that the holder may
bid at the foreclosure sale, or not reject during the foreclosure sale
or thereafter, in order to recover on its loan or other obligation. In
addition, there may be multiple security interests in a borrower's
property held by secured creditors, which the definition of ``fair
consideration'' must account for. Therefore, for a senior creditor, the
term ``fair consideration'' is proposed to mean a cash amount that
represents a value equal to or greater than the outstanding obligation
owed to the holder (including the fees, penalties, and other charges
incurred by the holder in connection with the property). ``Fair
consideration'' is further proposed to indicate that the amount that
will recover the holder's ``security interest'' in the property may
vary depending on the seniority of the loan or other obligation that is
being foreclosed upon. Specifically, a junior creditor may be required
to outbid senior creditors in order to recover the value of its loan or
other obligation. The definition of fair consideration therefore
distinguishes between what junior or senior creditors may bid or not
reject for purposes of maintaining the exemption. In addition, in order
to avoid liability under law (for example, to the borrower), the
foreclosing holder may be required to seek an amount at the foreclosure
sale that is greater than the outstanding obligation owed to the
foreclosing holder, or to sell the property in a different manner;
therefore, the proposed rule does not require a holder to accept an
offer of ``fair consideration'' if to do so would subject the holder to
liability under federal or state law.
In this way the proposed rule's provisions with respect to the sale
or disposition of property will not conflict with the manner in which
such sales are required to be conducted under general principles of law
applicable to the holder and the disposition of the property including
the UST. For purposes of this proposed rule, the definition of ``fair
consideration'' is an objective, ``bright-line'' test to determine
whether the foreclosing holder has an investment or other interest in
the property that is not within the exemption, or whether the holder's
post-foreclosure activities indicate that it continues to maintain its
ownership indicia in the property primarily to protect a security
interest, and is therefore within the protective ambit of the proposed
rule.
While a holder may use whatever means are reasonable and
appropriate for marketing foreclosed-on property to establish that it
is seeking to divest itself of property in an expeditious manner, this
proposed rule also provides a mechanism by which a holder can
definitely establish that it continues to hold indicia of ownership
primarily to protect a security interest and is not an ``owner,'' for
purposes of complying with the UST regulatory program, of foreclosed-on
property. This mechanism is intended to act as another ``bright line''
to provide clear and unambiguous evidence that a holder is not the UST
or UST system's ``owner'' following foreclosure: A holder choosing to
avail itself of this bright line test must, within 12 months following
the acquisition of marketable title, list the property with a broker,
dealer, or agent who deals with the type of property in question, or
advertise the property as being for sale or disposition on at least a
monthly basis in either a real estate publication or a trade or other
publication suitable for the property in question, or a newspaper of
general circulation (defined as one with a circulation over 10,000, or
one suitable under any applicable federal, state, or local rules of
court for publication required by court order or rules of civil
procedure) covering the area where the property is located. If the
holder satisfies these criteria, the holder is considered to have
complied with the requirement in the proposed rule that it is seeking
to sell or otherwise divest the property in an expeditious manner.
EPA also recognizes that market conditions, the condition of the
property, and other factors may mean that despite reasonable efforts to
expeditiously sell or divest foreclosed-on property, the property may
not be quickly sold. Therefore, this regulation does not impose a time
requirement for the ultimate disposition of foreclosed-on property.
Provided that the property is being actively offered for sale by the
holder and no offers of fair consideration are ignored, outbid, or
rejected, foreclosed-on property may continue to be held by the holder
without the holder being considered an ``owner'' of the UST or UST
system for purposes of complying with the UST regulatory program, as
detailed in this proposed rule.
Regardless of the manner in which the foreclosing holder chooses to
market the property, if at any time after six months following the
acquisition of marketable title the holder rejects, or does not act
upon within 90 days of receipt of, a written, bona fide, firm offer of
fair consideration for the property, the holder will lose the
protection of the proposed rule. Under this proposal, a ``written, bona
fide, firm offer'' is a legally enforceable, commercially reasonable,
offer, including all material terms of the transaction, from a ready,
willing, and able purchaser who demonstrates to the holder's
satisfaction the ability to perform. Where a holder outbids, rejects,
or fails to act upon an offer of fair consideration, the holder is
considered, for the purpose of the proposed regulatory exemption, to be
maintaining its indicia of ownership in the property as protection for
investment purposes, and not as security for the obligation.
The proposed exemption from regulatory compliance would also permit
a foreclosing holder to undertake actions with respect to the UST or
UST system to protect or preserve the value of the secured asset. For
example, a holder may determine that it needs to take certain actions
with respect to an UST or UST system's operations in order to preserve
the value of the foreclosed-on assets or to prevent a future release
(such as by the removal of an UST or UST system's contents as described
below), or to otherwise prepare property for safe public access
incident to sale or liquidation of assets. Precisely because a holder
in charge of an UST or UST system may need to take affirmative action
with respect to the UST or UST system incident to foreclosure and with
respect to any petroleum products that are known to be present, the
proposal provides that such actions of dominion and control over the
UST or UST system are considered necessary components of holding
ownership indicia primarily to protect a security interest, provided
such actions are undertaken to protect the asset's value and are not
undertaken for investment purposes. Therefore, under this proposed
rule, such mitigative or preventative measures are considered to be
actions that are consistent with holding ownership indicia primarily to
protect the security interest in the UST or UST system.
(5) Winding up operations after foreclosure. In addition, in the
post-foreclosure context, this proposed rule provides that a holder
that forecloses on an UST or UST system with ongoing operations may
wind up the UST or UST system's operations without also being
considered to be participating in management. Winding up is considered
a protected activity by a foreclosing holder because, without such
protection, foreclosure would not be possible where practical or
commercial necessity dictates that the foreclosing holder undertake
such actions. ``Winding up'' in the post-foreclosure context includes
those actions that are necessary to close down an UST or UST system's
operations, secure the site, and otherwise protect the value of the
foreclosed assets for subsequent sale or liquidation. In winding up an
UST or UST system, a holder may undertake all necessary security
measures or take other actions that protect and preserve an UST or UST
system's assets, including steps taken to prevent or minimize the risk
of a release or threat of release of the UST or UST system's contents.
D. Liability of a Holder as an Operator of an Underground Storage Tank
or Underground Storage Tank System
Although this proposed rule would be promulgated under authority to
write regulations governing UST activities, EPA intends that it be
consistent with and further the purposes of the statutory security
interest exemption found at Section 9003(h)(9). One critical aspect of
the RCRA subtitle I statutory security interest exemption is that while
it excludes a holder from the definition of ``owner'' for corrective
action purposes, the statute does not explicitly address a holder's
responsibilities as an UST or UST system ``operator.''4 The
absence of explicit language in the statute regarding operators creates
a potential problem for holders, since EPA's UST corrective action
regulations (as described in Section II. B of this preamble) apply to
both owners and operators of underground storage tanks. Thus, although
RCRA subtitle I clearly exempts holders from corrective action
liability as ``owners'' of USTs, the statute does not address whether
such otherwise exempt persons face correction action liability as
``operators'' of USTs. Without clear protection from corrective action
liability as potential operators of USTs, EPA believes that lenders
will continue to be reluctant to make loans to UST-related businesses
due to continued uncertainty about their potential liability for
corrective action. This regulatory proposal therefore addresses a
holder's potential liability for RCRA subtitle I corrective action as
an ``operator'' of an UST or UST system.
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\4\Under RCRA Subtitle I, being an ``operator'' is not
synonymous with ``participating in the management'' of an UST or UST
system. Section 9001(3)--Definitions and Exemptions--defines the
term ``operator'' to mean ``any person in control of, or having
responsibility for, the daily operation of the UST system.'' A
person may, without being an ``operator'' of an UST or UST system,
be sufficiently involved so as to be participating in the management
(as that term is defined elsewhere in this proposal) of an UST or
UST system.
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1. Pre-Foreclosure Operation
Prior to foreclosure, a holder who is in control of, or has
responsibility for, the daily operation of an UST or UST system is
subject to the full range of requirements applicable to operators of
USTs. In addition, a holder may also forfeit the protection of the
proposed regulatory security interest exemption from compliance with
the UST regulatory program as an owner if the holder participates in
the management of an UST or UST system as defined in this proposal.
However, a holder will not, as a general matter, have control of,
or responsibility for, the daily operation of an UST or UST system
prior to foreclosure in its capacity as a secured creditor who holds
indicia of ownership primarily to protect a security interest. Prior to
foreclosure, a holder is permitted to conduct those activities related
to its financial and administrative obligations of managing a loan
portfolio. The holder in this position will not lose its ability to
take advantage of the proposed regulatory exemption exclusively as a
result of engaging in these activities. See Section III.C.5 of this
preamble for a more complete discussion of this issue.
2. Post-Foreclosure Operation
If a borrower defaults on its loan obligation and the holder,
primarily to protect its security interest, forecloses on the
borrower's UST or UST system, the holder is faced with the decision to
continue or suspend the storage or dispensing of product from the UST.
As with activities prior to foreclosure, a holder who operates an UST
following foreclosure (in any manner other than placing the UST in
temporary or permanent closure as specified in this proposal) would,
under the current regulatory scheme, be an ``operator'' and subject to
all subtitle I requirements. If the holder complies with the
requirements of this rule for placing a tank into temporary or
permanent closure, a holder, although nevertheless an operator, would
be exempt from the subtitle I corrective action regulatory requirements
otherwise applicable to operators.
The strategies for complying with the UST technical standards
described in this proposal include emptying tanks, leaving vent lines
open and functioning, capping and securing lines within 15 days after
foreclosure, and performing either temporary or permanent closure of
the UST or UST system. Conversely, a foreclosing security holder who
exercises some other strategy for complying with the subtitle I
technical requirements (or who fails to comply) could be an
``operator'' under the subtitle I regulations and would therefore be
subject to the full panoply of subtitle I regulatory obligations
applicable to all operators of tanks including the corrective action
regulations.
As long as an UST or UST system continues to store product, future
releases are possible. Consequently, EPA believes that the best way to
ensure that a holder's tanks will not contribute to contamination after
the holder has taken possession of the UST or UST system (particularly
if the holder is exempted from EPA's corrective action regulations) is
to require the holder to empty its tanks of all petroleum product. An
UST or UST system is empty--in accordance with Sec. 280.70--when all
materials have been removed using commonly employed practices so that
no more than 2.5 centimeters (one inch) of residue, or 0.3 percent by
weight, of the total capacity of the UST system, remain in the system.
To ensure that the UST system has been adequately secured, vent lines
must be left open and functioning, and all other lines, pumps, manways,
and ancillary equipment must be capped and secured (Sec. 280.70). Under
today's proposal, holders who engage in these activities within 15 days
after foreclosure will be exempted from the corrective action
requirements applicable to ``operators.'' This is a reasonable
condition on which to base this exemption since the threat of future
contamination will have been effectively abated for the temporary
period of time that the property remains in foreclosure by emptying the
tank and complying with the other requirements of 40 CFR part 280, as
described in this proposed rule. Compliance with these requirements
will also satisfy the technical requirements applicable to foreclosing
holders as ``operators'' under the rule proposed today.
EPA is proposing that 15 days be allowed to empty the tank, and cap
and secure all lines and equipment based on its familiarity with
companies that specialize in providing UST technical services and on
the Agency's knowledge of the steps required to properly complete these
tasks. Based on this, EPA proposes that 15 days is a reasonable and
adequate time frame that limits the period of time during which a tank
containing petroleum product may be left largely unattended. However,
the Agency is interested in receiving comments from any holders who
feel that a 15-day time frame would be inadequate for a holder to
arrange for the completion of these tasks. EPA requests comments and
data about the adequacy of a 15-day time frame and information
supporting an alternative time frame. Information supporting EPA's
proposed time frame is available from the Agency OUST docket, reference
number UST 3-16.
In addition to emptying and securing the UST or UST system, a
holder who wishes to take advantage of the proposed exemption from
subtitle I corrective action regulatory requirements as an operator
must comply with the subtitle I requirements for either temporary or
permanent closure. A holder who chooses to permanently close its UST or
UST system, must do so in accordance with Secs. 280.71 through 280.74,
Subpart G--Out of Service UST Systems and Closure. A holder who chooses
to temporarily close its tanks is required, throughout the first 12
months following foreclosure, to maintain corrosion protection and
report any known or suspected releases from the UST system. In
accordance with Sec. 280.70, release detection is not required as long
as the UST system is empty.
If, after 12 months in temporary closure status, the holder
possesses an UST or UST system that does not meet either the
performance standards in Sec. 280.20 for new UST systems or the
upgrading requirements in Sec. 280.21 (excluding the spill and overfill
equipment requirements), and the holder has not successfully disposed
of the UST or UST system, the holder must either permanently close the
UST system in accordance with Secs. 280.71 through 280.74 or perform a
site assessment in accordance with Sec. 280.72(a) and apply for an
extension through the appropriate implementing agency.
A holder will only need to perform a site assessment if it has
failed to sell or otherwise divest of its UST or UST system property
within 12 months after entering temporary closure and only if the tanks
it has acquired have not been upgraded or replaced to meet the
requirements of Sec. 280.20 for new UST systems or Sec. 280.21 for
upgraded systems. (UST systems that are adequately protected from
corrosion and equipped with leak detection devices pose a significantly
lower threat to human health and the environment than do substandard
tanks.) The site assessment requirement can also be satisfied if one of
the external release detection methods allowed in Sec. 280.43(e) or (f)
is operating at the end of the 12-month period, and the release
detection method operating indicates that no release has occurred. For
those who are still in possession of tanks 12 months after foreclosure,
many are expected to possess upgraded or replaced tanks since much of
the credit that is expected to be extended subsequent to this rule
should be used for upgrading or replacing substandard tanks. Under
these circumstances, the holder would be allowed to remain in temporary
closure indefinitely. Therefore, EPA believes that few situations
should call for a site assessment while the holder is in temporary
closure. For those cases in which a holder will find it necessary to
perform a site assessment and apply for a temporary closure extension,
EPA does not believe that such a requirement will pose a significant
additional burden upon the holder, since it is increasingly a standard
business practice for a site assessment to be conducted upon most
transfers of commercial property. (See Guidelines for an Environmental
Risk Program, Federal Deposit Insurance Corporation, February 25,
1993.) While in some cases the requirement may oblige a holder to
perform a site assessment sooner (within 12 months after foreclosure)
rather than later (upon the date of sale or disposition of the UST or
UST system), EPA expects that in most cases a site assessment will, in
all probability, be performed before the UST or UST system is
transferred to a subsequent purchaser.
The purpose of the provision that requires an UST owner and
operator to perform a site assessment in order to apply for an
extension 12 months after entering temporary closure (if a substandard
UST or UST system has not been replaced or upgraded) was to allow a
variance mechanism for UST owners to avoid permanent closure of tanks,
on a case-by-case basis. The reason for requiring the site assessment
before applying for an extension was based on EPA's concerns that prior
contamination could have occurred and could continue to spread from a
temporarily closed UST system. Although a holder would not be required
to comply with EPA's UST corrective action regulations if contamination
is discovered (provided, of course, the holder satisfies the
requirements of this proposed rule), it would be required to report
evidence of the contamination to the implementing agency (as discussed
in the following subsection), who can then decide on the appropriate
course of action.
Of course, a holder may choose to continue to operate the UST by
storing or dispensing product after foreclosure, or otherwise not
exercise either of the options described above. The holder may
determine that its interests will be best served by forgoing the
security interest exemption, continuing operation of the UST system,
and perhaps realizing a greater return of capital on the security
interest by selling the property with the UST system as a going
concern. In such cases, the tank would be regulated in the same manner
as a tank operated by any other person, and the holder would be fully
responsible as an operator for compliance with RCRA subtitle I
regulations, including corrective action, the UST technical standards,
and financial responsibility requirements.
EPA believes that the environment is adequately protected where a
holder chooses either of the post-foreclosure options described above
for complying with the technical requirements of Subtitle I. Where the
tank is removed from service and emptied of its contents, the threat of
an unknown or undetected leak resulting in environmental contamination
is abated; accordingly, the Agency believes it is appropriate to exempt
a foreclosing holder from UST corrective action regulatory requirements
under these circumstances.
3. Lenders in Foreclosure Upon the Effective Date of the Rule
The Agency recognizes that some lenders may already hold UST
properties through foreclosure or its equivalents at the time the final
rule is promulgated. Although EPA is primarily concerned about the
future availability of capital to UST owners and operators, rather than
loans that have already been extended, the Agency recognizes that
holders may be concerned about their potential liability associated
with current holdings acquired through foreclosure or its equivalents
affecting the extension of future UST loans. A holder who possesses an
UST property at the time the rule is promulgated may have tanks that
still store product. It would be difficult to determine whether or not
contamination caused by a release from such tanks had occurred during
the time that the holder had possession of the UST property. A holder,
therefore, could potentially be held liable as an UST operator if he
has possession of a tank at the time the final rule is promulgated.
EPA requests comments on this aspect of today's proposal. We are
interested in collecting data that will clarify whether future UST loan
decisions would be negatively affected if the security interest
exemption is not extended to holders possessing UST properties through
foreclosure or its equivalents upon promulgation of this rule. In
addition, EPA is interested in comments addressing whether and how an
exemption from the UST regulatory requirements could be structured for
holders of such tanks. Finally, we are also interested in receiving
comments addressing the extent to which such a regulatory exemption
could impact human health and the environment.
4. Release Reporting Requirements Following Foreclosure
Under today's proposal, upon foreclosure, a holder taking advantage
of the proposed exemption from corrective action regulations must
nevertheless comply with the requirement in Sec. 280.50 that the
discovery of any releases from the UST be reported to the implementing
agency. Only the reporting requirement must be followed; the holder
need not comply with Sec. 280.52, despite the reference to that
provision in Sec. 280.50. The release reporting requirement of
Sec. 280.50 is part of Subpart E, which details the obligations for
reporting known or suspected releases, investigating off-site impacts,
confirming that a release has occurred, and cleaning up spills and
overfills. While subpart E generally implements Subtitle I's corrective
action and site investigation requirements, from which a holder may be
excluded under today's proposed rule, Sec. 280.50 has historically been
viewed by EPA as part of the UST technical standards.
A holder is responsible, following foreclosure or its equivalents,
for reporting to the implementing agency, any discovery of released
regulated substances, or any suspected release at an UST site or in the
surrounding area. Such reporting is considered necessary to ensure
protection of human health and the environment. By informing the
implementing agency of a release, the implementing agency can then
determine the appropriate response action, if any.
In the absence of today's proposed rule, a holder would have to
perform release investigation and confirmation in accordance with
Secs. 280.51 through 280.53. Under today's proposal, a holder who
chooses to take the tank(s) out of service as described in this
proposal is required to follow the procedures established in
Sec. 280.50 but is not subject to the release investigation and
confirmation requirements in Secs. 280.51 through 280.53. A holder who
elects to keep the tank(s) in operation is obligated to comply with all
of the Subpart E requirements, including those related to release
investigation and confirmation, and corrective action.
E. Actions Taken to Protect Human Health and the Environment
Because of the special position and role played by bona fide
holders, as has been recognized by Congress in creating the statutory
exemption from corrective action liability, the Agency believes that it
is appropriate to include within the scope of protected UST or UST
system activities certain lender actions which protect human health and
the environment. EPA believes that there are a number of activities in
which a holder may engage after foreclosure which can contribute to the
protection of human health and the environment and in which the holder
may engage and still meet the terms of the proposed rule's exemption
from regulatory requirements. Such activities include: Release response
and corrective action for UST systems, permanent or temporary closure
of an UST or UST system, tank upgrades or replacements, environmental
investigations, maintenance of corrosion protection, and release
reporting. The Agency believes that protection of human health and the
environment can be advanced by allowing a holder to participate in
activities associated with environmental compliance either prior to or
following foreclosure on an UST or UST system. Environmental compliance
activities are generally considered to be integral to the daily
operations of an UST or UST system, and a person who participates in
those activities would typically be considered an operator. However, a
reasonable holder may also undertake such activities in the course of
maintaining its indicia of ownership in the tank to protect its
security interest. Therefore, the Agency believes that it is
appropriate to propose that environmental compliance activities, if
undertaken by a holder, will nevertheless allow the holder to take
advantage of the proposed exemption from regulatory requirements. The
Agency is not proposing that these activities be required of a holder
as a condition for obtaining the security interest exemption as an UST
owner, but that holders be able to participate in these activities
without losing the protection of the proposed exemption.
Prior to foreclosure, therefore, and where the holder is otherwise
permitted,5 a holder may require the borrower to comply, or itself
undertake to ensure compliance, with the subtitle I regulations
applicable to the tank owner and operator (typically, the borrower),
without being deemed an ``operator'' under the provisions of this
proposed rule. EPA believes that a holder who is ensuring that a tank
is operated as specified in 40 CFR part 280 (even if the holder is
itself performing the activities authorized or required by part 280) is
acting both to preserve the collateral (and therefore acting consistent
with its capacity as a security interest holder) and to protect human
health and the environment. It is appropriate for a holder to intervene
in such circumstances in which human health and the environment are
threatened by an UST owner or operator's improper management or
operation of its tank(s). However, undertaking activities that bring
the tank(s) into compliance (i.e., regulatory compliance actions such
as tank testing, leak detection, upgrading, etc.) will not exempt a
holder from complying with the UST corrective action regulatory
requirements if the holder is otherwise involved in the day-to-day
operation of the tank(s). All other acts of operation undertaken by a
holder (such as filling the tank(s) with product, selling and/or
dispensing tank product, performing overall management functions, etc.)
are not shielded activities under this proposed rule because by doing
so the holder displaces the borrower as the primary operator of the
tank(s).
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\5\For example, where the lender is permitted pursuant to the
loan document or under applicable state laws.
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Furthermore, following foreclosure, where the holder chooses to
take advantage of the conditional exemption from the corrective action
regulations by emptying and removing the tank from operation, as
specified above, the Agency proposes that the holder may--without
losing the protection of the proposed rule--undertake cleanup
activities consistent with the corrective action requirements of 40 CFR
part 280, subpart F at or in connection with the UST or UST system. EPA
specifically requests comments on this aspect of today's proposal.
IV. Financial Responsibility Requirements
RCRA section 9003(d), as implemented by EPA at 40 CFR part 280,
subpart H--Financial Responsibility, requires owners or operators of
petroleum USTs to demonstrate financial responsibility for taking
corrective action and for compensating third parties for bodily injury
and property damage caused by accidental UST releases. As discussed
earlier under Section III. A of this proposal, EPA is defining, for
purposes of its Subtitle I corrective action and technical
requirements, the term ``owner'' to mean that a holder who maintains
ownership rights in an UST or UST system primarily to protect a
security interest does not rise to level of a full ``owner,'' and
therefore is not subject to compliance with those regulatory
requirements. As described earlier, this proposed revision of EPA's
corrective action regulatory program is consistent with the Subtitle I
statutory security interest exemption. Similarly, the Agency believes
that a holder is not subject to the financial responsibility
requirements as an UST owner. The Agency is also proposing to exempt a
holder as an UST operator from the financial responsibility
requirements.
Before a holder takes possession of an UST or UST system, a holder
is not considered an UST operator, for purposes of EPA's technical and
financial responsibility regulations, if it is acting merely as a
holder and is not in control of the daily operation of the UST or UST
system. Therefore, a holder typically is not subject to the UST
financial responsibility requirements of 40 CFR part 280, subpart H as
an operator prior to foreclosure. EPA is today proposing that a holder
be exempted from corrective action as an operator after foreclosure if
it ensures that its tanks no longer store petroleum and it complies
with the temporary or permanent closure requirements specified in this
rule. (See Section III. D. 2 of this preamble). In these situations,
where the tanks are empty and pose little threat of release, it would
serve no useful purpose to require a holder to demonstrate compliance
with the financial responsibility requirements for corrective action.
Therefore, the Agency is proposing to exempt holders who satisfy all
the other requirements in this proposed rule from demonstrating
Subtitle I financial responsibility for UST corrective action.
A holder's responsibility for demonstrating UST financial
responsibility for third-party bodily injury and property damage
compensation poses a different issue. While RCRA Subtitle I does not
include provisions that actually impose third-party liability upon UST
owners and operators, it does require UST owners and operators to
demonstrate their ability to compensate third parties for bodily injury
and property damage caused by accidental releases arising from the
operation of an UST or UST system. The Agency believes that a holder
who complies with all the conditions set forth in today's proposal
should not be required to comply with any of the UST financial
responsibility requirements as an owner or operator, including those
for both corrective action and third-party liability coverage. EPA has
chosen to propose this exemption based on the statutory authority
provided in section 9003. The proposed exemption is consistent with the
interpretation of that language adopted in the preamble to the UST
financial responsibility final rule (53 FR 43323). In that rule, EPA
exempted tanks taken out of operation prior to the effective date of
the rule from UST financial responsibility compliance. In the preamble
to the final rule, EPA recognized that ``insurance providers would be
extremely reluctant to assure tanks taken out of operation because of
the perceived greater uncertainty associated with them'' (53 FR 43327).
In particular, insurers have indicated that in the case of foreclosed
USTs, they would be concerned about vandalism and other threats to USTs
at non-operational, unattended gas stations or similar locations with
public access. The preamble also states that ``even if providers of
assurance would assure these tanks, it is unlikely that they would
cover leaks which occurred before the effective date of the policy''
(53 FR 43327).
A similar situation exists for holders who empty their tanks and
enter temporary or permanent closure after foreclosure. EPA has
discovered that it is practically impossible to obtain third-party
environmental insurance coverage for a new owner of empty tanks.
Providers of financial assurance are very reluctant to provide any
coverage for tanks that no longer store petroleum product. Further,
providers are reluctant to provide coverage for damages that occur
after the effective date of the policy for releases that might have
occurred prior to the effective date of the policy. Under this proposed
rule a holder is required to empty its tanks in order to be exempt from
corrective action regulatory requirements. Since providers are unlikely
to provide any coverage for empty tanks at non-operational facilities
or for releases that occurred prior to foreclosure, and since third-
party damages would be extremely unlikely to stem from releases
occurring after the holder forecloses on and empties its tanks, the
Agency believes it is unnecessary to require third-party liability
coverage for such tanks.
RCRA section 9003(c)(6) supports this proposed exemption. That
provision emphasizes the connection between the UST financial
responsibility requirement and a tank's operational status: ``The
regulations promulgated pursuant to this section shall include: . . .
(6) requirements for maintaining evidence of financial responsibility
for taking corrective action and compensating third parties for bodily
injury and property damage caused by sudden and nonsudden accidental
releases arising from operating an underground storage tank.''
[emphasis added.] The Agency believes that since a holder must
demonstrate that its tanks are empty and that it is complying with the
UST temporary or permanent closure requirements in order to avoid
corrective action liability as an operator, there should be no need for
a holder who meets these requirements to demonstrate financial
responsibility for corrective action or third-party damages. By
requiring the holder to empty the tank in order to be exempt from
corrective action requirements, EPA is ensuring that damages caused by
future releases from that tank will be minimized if not avoided
altogether. As a result, EPA is proposing that holders who act in
accordance with the requirements described in this proposed rule be
exempt from all subtitle I financial responsibility requirements.
V. State Program Approval
RCRA subtitle I section 9004, as implemented by 40 CFR part 281,
provides states the ability to operate an UST regulatory program in
lieu of the federal program if they first submit the program for review
and receive approval from EPA. EPA approval of a state program means
that the requirements in the state's laws and regulations will be in
effect rather than the federal requirements. Program approval ensures
that a single set of requirements (the state's) will be enforced in
that state, thus eliminating the duplication and confusion that can
result from having separate state and federal requirements. EPA
considers state program approval to be an integral part of the UST
regulatory program.
EPA's approval review focuses primarily on the basic state
authorities (laws and regulations) needed to achieve the underlying
objectives of the federal regulations covering the UST technical
standards, corrective action, and financial responsibility
requirements. The UST state program approval process is also based upon
a performance-oriented approach. The statutory test for an approvable
state program is that it be ``no less stringent'' than the federal
requirements and include as many categories of UST systems (or be as
broad in scope) as the federal requirements. EPA reviews the state's
specific statutory and regulatory provisions as well as their
interpretation by the attorney general of the state.
Today's proposed rule is not intended to present a barrier for
states to receive state program approval. A state is not required to
have enacted a security interest exemption in order to receive approval
of its program from EPA, since failure to have such a provision would
merely make the state program broader in scope than the federal one.
However, EPA encourages states to adopt statutory and/or regulatory
provisions comparable to the final federal UST lender liability rule so
that credit-worthy UST owners and operators will have access to funds
to upgrade or replace their tanks.
If a state program includes an UST security interest exemption, EPA
will evaluate it against the criteria in Sec. 281.39, as proposed in
this notice. These criteria stem from the key components contained in
this proposed rule. A state program that exempts a holder from UST
corrective action, financial responsibility, and technical requirements
as an owner may be approved if: The holder is maintaining indicia of
ownership primarily to protect a security interest in a petroleum UST
or UST system; the holder does not participate in the management of the
UST or UST system; and the holder does not engage in petroleum
production, refining, and marketing. In addition, a state program may
be approved if it exempts a holder from corrective action and financial
responsibility as an operator and if, in addition to the three previous
criteria, it requires the holder to demonstrate that its tanks have
been emptied and secured, and that it has either permanently or
temporarily closed the UST or UST system.
The state's program application should address the issue of UST
lender liability in the ``Scope'' section of its state program
description, under Sec. 281.21(a)(3) of the State Program Approval
regulations.
VI. Economic Analysis
As discussed elsewhere in this proposal, EPA believes that concerns
over environmental liability are making a significant number of lenders
reluctant to make loans to otherwise credit-worthy owners and operators
of USTs. A more analytical approach to describing the current lending
climate and the potential effects associated with today's proposal is
through a discussion of lending rates that UST owners are currently
faced with, in comparison to those that may prevail after promulgation
of a final rule.
In analytical terms, prior to final promulgation of today's
proposed rule, the rate that lenders charge now when considering making
an UST-related loan can be described as:
rmarket-i=rb+re
where:
rmarket=Prevailing interest rate on UST-related loans
i=Risk-free rate of return
rb=Risk premium banks charge for loans to small businesses. (This
factor includes the financial risk for a business with certain assets
that is unable to repay its loan.)
re=Risk premium charged for UST owners. (This factor includes the
financial risk that a lender may have to pay for contamination, or
uncertainty regarding the true value of collateral, in the event of
contamination.)
Due to the current uncertainty regarding a holder's obligations to
comply with the UST regulatory requirements, the risk premium
``re'' that banks have to charge in order to be adequately
compensated for their risk in an UST-related loan may often be so high
that it effectively precludes lenders from making loans at this level.
A related barrier to lending is that since all UST owners bear a
systematic risk imposed by government regulations, lenders cannot
diversify to substantially reduce or eliminate the UST-related risk
premium, re, by holding a portfolio of UST-related loans with
different characteristics and risks. Since most UST owners and
operators are small businesses that cannot self finance, they will
either forego or delay UST facility improvements. While many UST-
related loans are expected to be used for financing tank upgrades or
replacements, these loans may also be used to provide additional
services at the facility (e.g., an expanded area for food items at a
convenience store). If lenders are precluded from making UST-related
loans, both environmental protection and economic growth may suffer.
By providing the exemption for holders from UST regulatory
requirements contained in this proposed rule and thus reducing the
uncertainty associated with making an UST-related loan, the risk
premium is expected to be significantly reduced. The interest rate
relationship after final promulgation of today's proposed rule can be
described as:
rmarket (post rule)=i+rb+re (post rule)
where:
rmarket (post rule)=Prevailing interest on UST-related loans after
final promulgation of today's proposed rule
re (post rule)=Risk premium charged for UST owners after final
promulgation of today's proposed rule
Although re (post rule) will still exist, it is expected to be
significantly less than re. The result would be the reduction of
the prevailing interest rate on UST-related loans to a level,
rmarket (post rule), that is both adequate to compensate lenders
for their perceived risk and at the same time affordable for credit-
worthy UST owners.
There are social costs associated with owners' and operators'
inability to use the least costly financial mechanism to comply with
the existing UST regulations. By reducing the risk premium to a level
at which lenders are both willing and able to make UST-related loans,
this proposed regulation is expected to increase the ability of UST
owners and operators to comply with subtitle I regulations, thereby
reducing these social costs. To the extent that loans are made for
environmental compliance purposes, social costs would also be reduced
by decreasing the number and severity of releases from old USTs that
might otherwise occur in the absence of upgrading or replacing tanks.
The Agency is interested in obtaining comments on how this proposed
rule might allow UST owners and operators to use less costly financial
mechanisms to comply with UST regulations. Specifically, the Agency
requests information from lenders on the current interest rate charged
for loans when property with one or more USTs is used as collateral.
The Agency also requests information from lenders regarding the extent
to which credit might have been extended to UST owners and operators in
the past had this proposed rule been in effect.
Further information and a more detailed discussion of the costs and
benefits associated with today's proposal is contained in the
``Regulatory Background Document'' for this proposed rule, located in
the OUST Docket at 401 M Street, SW.; room 2616; Washington, DC 20460.
VII. Regulatory Assessment Requirements
A. Executive Order 12866
Under Executive Order 12866 (58 FR 51,735 (October 4, 1993)), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to review by the U.S. Office of Management and
Budget (OMB) and the requirements of the Executive Order. The Order
defines ``significant regulatory action'' as one that is likely to
result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof, or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this proposed rule is a ``significant regulatory
action'' because it raises policy issues. As such, this action was
submitted to OMB for review. Changes made in response to OMB
suggestions or recommendations will be documented in the public record.
B. Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act of 1980, agencies
must evaluate the effects of a regulation on small entities. If the
rule is likely to have a ``significant impact on a substantial number
of small entities,'' then a Regulatory Flexibility Analysis must be
performed. Because this proposed rule may actually result in cost
savings for small entities that hold security interests in USTs or UST
systems, EPA certifies that today's proposed rule would not have a
significant impact on a substantial number of small entities.
C. Paperwork Reduction Act
This proposed rule does not contain any new information collection
requirements under the provision of the Paperwork Reduction Act, 44 USC
3501 et seq.
To the extent that this proposed rule discusses any information
collection requirements imposed under existing underground storage tank
regulations, those requirements have been approved by the OMB under the
Paperwork Reduction Act and have been assigned control number 2050-0068
(ICR no. 1360).
List of Subjects in 40 CFR Parts 280 and 281
Environmental liability, Financial institutions, Ground water,
Lender liability, Oil pollution, Petroleum, State program approval,
Underground storage tanks, Water pollution control.
Dated: June 3, 1994.
Carol M. Browner,
Administrator.
For the reasons set out in the preamble, chapter I, title I of the
Code of Federal Regulations is proposed to be amended as follows:
PART 280--TECHNICAL STANDARDS AND CORRECTIVE ACTION REQUIREMENTS
FOR OWNERS AND OPERATORS OF UNDERGROUND STORAGE TANKS (USTs)
1. The authority citation for part 280 continues to read as
follows:
Authority: 42 U.S.C. 6912, 6991a, 6991b, 6991c, 6991d, 6991e,
6991f, 6991h.
2. Part 280 is proposed to be amended by adding subpart I
consisting of Secs. 280.200 through 280.250 to read as follows:
Subpart I--Lender Liability
Sec.
280.200 Definitions.
280.210 Participation in management.
280.220 Ownership of an underground storage tank or underground
storage tank system.
280.230 Operating an underground storage tank or underground
storage tank system.
280.240 Actions taken to protect human health and the environment
under 40 CFR part 180.
280.250 Financial responsibility.
Subpart I--Lender Liability
Sec. 280.200 Definitions.
(a) UST technical standards, as used in this subpart, refers to the
UST preventative and operating requirements under 40 CFR part 280,
subparts B, C, D, G, and Sec. 280.50 of subpart E.
(b) Petroleum production, refining, and marketing.--(1) Petroleum
production means the production of crude oil or other forms of
petroleum (as defined in Sec. 280.12) as well as the production of
petroleum products from purchased materials.
(2) Petroleum refining means the cracking, distillation,
separation, conversion, upgrading, and finishing of refined petroleum
or petroleum products.
(3) Petroleum marketing means the distribution, transfer, or sale
of petroleum or petroleum products for wholesale or retail purposes.
(c) Indicia of ownership means evidence of a secured interest,
evidence of an interest in a security interest, or evidence of an
interest in real or personal property securing a loan or other
obligation, including any legal or equitable title to real or personal
property acquired incident to foreclosure or its equivalents. Evidence
of such interests include, but are not limited to, mortgages, deeds of
trust, liens, surety bonds and guarantees of obligations, title held
pursuant to a lease financing transaction in which the lessor does not
select initially the leased property (hereinafter ``lease financing
transaction''), legal or equitable title obtained pursuant to
foreclosure, and their equivalents. Evidence of such interests also
includes assignments, pledges, or other rights to or other forms of
encumbrance against property that are held primarily to protect a
security interest. A person is not required to hold title or a security
interest in order to maintain indicia of ownership.
(d) A holder is a person who maintains indicia of ownership (as
defined in Sec. 280.200(c)) primarily to protect a security interest
(as defined in Sec. 280.200(f)(1)) in a petroleum UST or UST system. A
holder includes the initial holder (such as a loan originator); any
subsequent holder (such as a successor-in-interest or subsequent
purchaser of the security interest on the secondary market); a
guarantor of an obligation, surety, or any other person who holds
ownership indicia primarily to protect a security interest; or a
receiver or other person who acts on behalf or for the benefit of a
holder.
(e) A borrower, debtor, or obligor is a person whose UST or UST
system is encumbered by a security interest. These terms may be used
interchangeably.
(f) Primarily to protect a security interest means that the
holder's indicia of ownership are held primarily for the purpose of
securing payment or performance of an obligation.
(1) Security interest means an interest in a petroleum UST or UST
system or in the facility or property on which the UST or UST system is
located, created, or established for the purpose of securing a loan or
other obligation. Security interests include but are not limited to
mortgages, deeds of trusts, liens, and title pursuant to lease
financing transactions. Security interests may also arise from
transactions such as sale and leasebacks, conditional sales,
installment sales, trust receipt transactions, certain assignments,
factoring agreements, accounts receivable financing arrangements, and
consignments, if the transaction creates or establishes an interest in
an UST or UST system or in the facility or property on which the UST or
UST system is located, for the purpose of securing a loan or other
obligation.
(2) Primarily to protect a security interest, as used in this
subpart, does not include indicia of ownership held primarily for
investment purposes, nor ownership indicia held primarily for purposes
other than as protection for a security interest. A holder may have
other, secondary reasons for maintaining indicia of ownership, but the
primary reason why any ownership indicia are held must be as protection
for a security interest.
Sec. 280.210 Participation in management.
The term participating in the management of an UST or UST system
means that the holder is engaging in acts of petroleum UST or UST
system management, as defined herein.
(a) Actions that are participation in management pre-foreclosure.
Participation in the management of an UST or UST system means, for
purposes of this subpart, actual participation in the management or
control of decisionmaking related to the UST or UST system by the
holder and does not include the mere capacity or ability to influence
or the unexercised right to control UST or UST system operations. A
holder is participating in management, while the borrower is still in
possession of the UST or UST system encumbered by the security
interest, only if the holder either:
(1) Exercises decisionmaking control over the borrower's
environmental compliance, such that the holder has undertaken
responsibility for the borrower's UST or UST system management; or
(2) Exercises control at a level comparable to that of a manager of
the borrower's enterprise, such that the holder has assumed or
manifested responsibility for the overall management of the enterprise
encompassing the day-to-day decisionmaking of the enterprise with
respect to:
(i) Environmental compliance; or
(ii) All, or substantially all, of the operational (as opposed to
financial or administrative) aspects of the enterprise other than
environmental compliance. Operational aspects of the enterprise include
functions such as that of facility or plant manager, operations
manager, chief operating officer, or chief executive officer. Financial
or administrative aspects include functions such as that of credit
manager, accounts payable/receivable manager, personnel manager,
controller, chief financial officer, or similar functions.
(b) Actions that are not participation in management pre-
foreclosure.
(1) Actions at the inception of the loan or other transaction. No
act or omission prior to the time that indicia of ownership are held
primarily to protect a security interest constitutes evidence of
participation in management within the meaning of this Subpart. A
prospective holder who undertakes or requires an environmental
investigation (which could include a site assessment, inspection, and/
or audit) of the UST or UST system in which indicia of ownership are to
be held or requires a prospective borrower to clean up contamination
from the UST or UST system or to comply or come into compliance
(whether prior or subsequent to the time that indicia of ownership are
held primarily to protect a security interest) with any applicable law
or regulation is not by such action considered to be participating in
the UST's or UST system's management.
(2) Loan policing and workout. Actions that are consistent with
holding ownership indicia primarily to protect a security interest do
not constitute participation in management for purposes of this
subpart. The authority for the holder to take such actions may, but
need not, be contained in contractual or other documents specifying
requirements for financial, environmental, and other warranties,
covenants, conditions, representations or promises from the borrower.
Loan policing and workout activities cover and include all such
activities up to foreclosure or its equivalents, exclusive of any
activities that constitute participation in management.
(i) Policing the security interest or loan. A holder who engages in
policing activities prior to foreclosure will remain within the
exemption provided that the holder does not by such actions participate
in the management of the UST or UST system as provided in
Sec. 280.210(a). Such actions include, but are not limited to,
requiring the borrower to clean up contamination from the UST or UST
system during the term of the security interest; requiring the borrower
to comply or come into compliance with applicable federal, state, and
local environmental and other laws, rules, and regulations during the
term of the security interest; securing or exercising authority to
monitor or inspect the UST or UST system (including on-site
inspections) in which indicia of ownership are maintained, or the
borrower's business or financial condition during the term of the
security interest; or taking other actions to adequately police the
loan or security interest (such as requiring a borrower to comply with
any warranties, covenants, conditions, representations, or promises
from the borrower).
(ii) Loan work out. A holder who engages in work out activities
prior to foreclosure or its equivalents will remain within the
exemption provided that the holder does not by such action participate
in the management of the UST or UST system as provided in
Sec. 280.210(a). For purposes of this rule, work out refers to those
actions by which a holder, at any time prior to foreclosure or its
equivalents, seeks to prevent, cure, or mitigate a default by the
borrower or obligor; or to preserve, or prevent the diminution of, the
value of the security. Work out activities include, but are not limited
to, restructuring or renegotiating the terms of the security interest;
requiring payment of additional rent or interest; exercising
forbearance; requiring or exercising rights pursuant to an assignment
of accounts or other amounts owing to an obligor; requiring or
exercising rights pursuant to an escrow agreement pertaining to amounts
owing to an obligor; providing specific or general financial or other
advice, suggestions, counseling, or guidance; and exercising any right
or remedy the holder is entitled to by law or under any warranties,
covenants, conditions, representations, or promises from the borrower.
(c) Foreclosure on an UST or UST system and participation in
management activities post-foreclosure--(1) Foreclosure. Indicia of
ownership that are held primarily to protect a security interest
include legal or equitable title acquired through or incident to
foreclosure or its equivalents. For purposes of this subpart, the term
foreclosure or its equivalents includes purchase at foreclosure sale;
acquisition or assignment of title in lieu of foreclosure; termination
of a lease or other repossession; acquisition of a right to title or
possession; an agreement in satisfaction of the obligation; or any
other formal or informal manner (whether pursuant to law or under
warranties, covenants, conditions, representations, or promises from
the borrower) by which the holder acquires title to or possession of
the secured UST or UST system. The indicia of ownership held after
foreclosure continue to be maintained primarily as protection for a
security interest provided that the holder undertakes to sell, re-lease
an UST or UST system held pursuant to a lease financing transaction
(whether by a new lease financing transaction or substitution of the
lessee), or otherwise divest itself of the UST or UST system in a
reasonably expeditious manner, using whatever commercially reasonable
means are relevant or appropriate with respect to the UST or UST
system, taking all facts and circumstances into consideration, and
provided that the holder did not participate in management (as defined
in Sec. 280.210(a)) prior to foreclosure or its equivalents. For
purposes of establishing that a holder is seeking to sell, re-lease an
UST or UST system held pursuant to a lease financing transaction
(whether by a new lease financing transaction or substitution of the
lessee), or divest an UST or UST system in a reasonably expeditious
manner, the holder may use whatever commercially reasonable means as
are relevant or appropriate with respect to the UST or UST system, or
may employ the means specified in Sec. 280.210(c)(2). A holder that
outbids, rejects, or fails to act upon a written bona fide, firm offer
of fair consideration for the UST or UST system, as provided in
Sec. 280.210(c)(2), is not considered to hold indicia of ownership
primarily to protect a security interest.
(2) Holding foreclosed property for disposition and liquidation. A
holder, who did not participate in management prior to foreclosure or
its equivalents, may sell, re-lease an UST or UST system held pursuant
to a lease financing transaction (whether by a new lease financing
transaction or substitution of the lessee), liquidate, wind up
operations, and take measures to preserve, protect, or prepare the
secured UST or UST system prior to sale or other disposition. The
holder may conduct these activities without voiding the exemption,
subject to the requirements of this subpart.
(i) A holder establishes that the ownership indicia maintained
following foreclosure or its equivalents continue to be held primarily
to protect a security interest by, within 12 months following
foreclosure, listing the UST or UST system or the facility or property
on which the UST or UST system is located, with a broker, dealer, or
agent who deals with the type of property in question, or by
advertising the UST or UST system as being for sale or disposition on
at least a monthly basis in either a real estate publication or a trade
or other publication suitable for the UST or UST system in question, or
a newspaper of general circulation (defined as one with a circulation
over 10,000, or one suitable under any applicable federal, state, or
local rules of court for publication required by court order or rules
of civil procedure) covering the area where the UST or UST system is
located. For purposes of this provision, the 12-month period begins to
run from the time that the holder acquires marketable title, provided
that the holder, after the expiration of any redemption or other
waiting period provided by law, was acting diligently to acquire
marketable title. If the holder fails to act diligently to acquire
marketable title, the 12-month period begins to run on the date of
foreclosure or its equivalents.
(ii) A holder that outbids, rejects, or fails to act upon an offer
of fair consideration for the UST or UST system or the facility or
property on which the UST or UST system is located establishes by such
outbidding, rejection, or failure to act, that the ownership indicia in
the secured UST or UST system are not held primarily to protect the
security interest, unless the holder is required, in order to avoid
liability under federal or state law, to make a higher bid, to obtain a
higher offer, or to seek or obtain an offer in a different manner.
(A) Fair consideration, in the case of a holder maintaining indicia
of ownership primarily to protect a senior security interest in the UST
or UST system, is the value of the security interest as defined in this
section. The value of the security interest is calculated as an amount
equal to or in excess of the sum of the outstanding principal (or
comparable amount in the case of a lease that constitutes a security
interest) owed to the holder immediately preceding the acquisition of
full title (or possession in the case of an UST or UST system subject
to a lease financing transaction) pursuant to foreclosure or its
equivalents, plus any unpaid interest, rent, or penalties (whether
arising before or after foreclosure or its equivalents), plus all
reasonable and necessary costs, fees, or other charges incurred by the
holder incident to work out, foreclosure or its equivalents, retention,
preserving, protecting, and preparing the UST or UST system prior to
sale, re-lease of an UST or UST system held pursuant to a lease
financing transaction (whether by a new lease financing transaction or
substitution of the lessee) or other disposition, plus environmental
investigation and corrective action costs incurred under Secs. 280.51
through 280.67; less any amounts received by the holder in connection
with any partial disposition of the property and any amounts paid by
the borrower subsequent to the acquisition of full title (or possession
in the case of an UST or UST system subject to a lease financing
transaction) pursuant to foreclosure or its equivalents. In the case of
a holder maintaining indicia of ownership primarily to protect a junior
security interest, fair consideration is the value of all outstanding
higher priority security interests plus the value of the security
interest held by the junior holder, each calculated as set forth in the
preceding sentence.
(B) Outbids, rejects, or fails to act upon an offer of fair
consideration means that the holder outbids, rejects, or fails to act
upon within 90 days of receipt of a written, bona fide, firm offer of
fair consideration for the UST or UST system received at any time after
six months following foreclosure or its equivalents. A ``written, bona
fide, firm offer'' means a legally enforceable, commercially
reasonable, cash offer solely for the foreclosed UST or UST system,
including all material terms of the transaction, from a ready, willing,
and able purchaser who demonstrates to the holder's satisfaction the
ability to perform. For purposes of this provision, the six-month
period begins to run from the time that the holder acquires marketable
title, provided that the holder, after the expiration of any redemption
or other waiting period provided by law, was acting diligently to
acquire marketable title. If the holder fails to act diligently to
acquire marketable title, the six-month period begins to run on the
date of foreclosure or its equivalents.
Sec. 280.220 Ownership of an underground storage tank or underground
storage tank system.
(a) Ownership of an UST or UST system for purposes of corrective
action. A holder is not an ``owner'' of a petroleum UST or UST system
for purposes of compliance with corrective action requirements under
Secs. 280.51 through 280.67, provided the person:
(1) Does not participate in the management of the UST or UST system
as defined in Sec. 280.210; and
(2) Does not engage in petroleum production, refining, and
marketing.
(b) Ownership of an UST or UST system for purposes of the UST
technical standards. A holder is not an ``owner'' of a petroleum UST or
UST system for purposes of the UST technical standards provided that
the holder:
(1) Does not participate in the management of the UST or UST system
as defined in Sec. 280.210; and
(2) Does not engage in petroleum production, refining, and
marketing.
Sec. 280.230 Operating an underground storage tank or underground
storage tank system.
(a) Operating an UST or UST system prior to foreclosure. A holder,
prior to foreclosure or its equivalents, is not an ``operator'' of a
petroleum UST or UST system for purposes of compliance with the
corrective action requirements of Secs. 280.51 through 280.67 and the
UST technical standards, provided the holder is not in control of or
does not have responsibility for the daily operation of the UST or UST
system.
(b) Operating an UST or UST system after foreclosure.
(1) A holder who has not participated in management prior to
foreclosure and who acquires a petroleum UST or UST system through
foreclosure or its equivalents is not an ``operator'' of the UST or UST
system for purposes of compliance with the corrective action
requirements under Secs. 280.51 through 280.67, provided that the
holder within 15 days following foreclosure or its equivalents, empties
all of its USTs and UST systems so that no more than 2.5 centimeters
(one inch) of residue, or 0.3 percent by weight of the total capacity
of the UST system, remains in the system; leaves vent lines open and
functioning; and caps and secures all other lines, pumps, manways, and
ancillary equipment.
(2) In addition, the holder must either:
(i) Permanently close the UST or UST system in accordance with
Secs. 280.71 through 280.74, except Sec. 280.72(b); or
(ii) Temporarily close the UST or UST system in accordance with the
applicable provisions of Sec. 280.70 as follows:
(A) A holder may remain in temporary closure for up to 12 months
by:
(1) Continuing operation and maintenance of corrosion protection in
accordance with Sec. 280.31; and
(2) Reporting suspected releases to the implementing agency.
(B) If the UST system is temporarily closed for more than 12
months, the holder must permanently close the UST system if it does not
meet either the performance standards in Sec. 280.20 for new UST
systems or the upgrading requirements in Sec. 280.21 except that the
spill and overfill equipment requirements do not have to be met. A
substandard UST system must be permanently closed in accordance with
Secs. 280.71 through 280.74, except Sec. 280.72(b), unless the
implementing agency provides an extension of the 12-month temporary
closure period. The holder must complete a site assessment in
accordance with Sec. 280.72(a) before such an extension can be applied
for.
(3) A holder who acquires a petroleum UST or UST system through
foreclosure or its equivalents is not an ``operator'' of the UST or UST
system for purposes of 40 CFR part 280, subparts B, C, and D of the
technical standards for the first 15 days following foreclosure or its
equivalents, provided the holder complies with Sec. 280.230(b).
Sec. 280.240 Actions taken to protect human health and the environment
under 40 CFR part 280.
A holder is not considered to be an operator of an UST or UST
system or to be participating in the management of an UST or UST system
solely on the basis of undertaking actions under 40 CFR part 280,
subparts B through H, provided that the holder does not otherwise
participate in the management or daily operation of the UST or UST
system. Such actions include, but are not limited to, release
reporting, release response and corrective action, temporary or
permanent closure of an UST or UST system, UST upgrading or
replacement, and maintenance of corrosion protection. A holder who
undertakes these actions must do so in compliance with the applicable
requirements in 40 CFR part 280.
Sec. 280.250 Financial responsibility.
A holder is exempt from the requirement to demonstrate financial
responsibility under subpart H--Financial Responsibility, provided the
holder:
(a) Does not participate in the management of the UST or UST system
as defined in Sec. 280.210;
(b) Does not engage in petroleum production, refining, and
marketing as defined in Sec. 280.200(b); and
(c) Complies with the requirements of Sec. 280.230.
PART 281--APPROVAL OF STATE UNDERGROUND STORAGE TANK PROGRAMS
1. The authority citation for part 281 continues to read as
follows:
Authority: Sections 2002, 9004, 9005, 9006 of the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. 6912, 6991 (c), (d), (e)).
Subpart C--[Amended]
2. Section 281.39 to added to subpart C to read as follows:
Sec. 281.39 Lender liability.
(a) A state is not required to have a security interest exemption
to obtain or maintain RCRA Subtitle I program approval. If a state
enacts a security interest exemption provision, it does not have to be
as extensive as the security interest exemption provided for in 40 CFR
part 280, subpart I, as defined in Secs. 280.200 through 280.250, to
obtain or maintain RCRA subtitle I program approval. However, a state's
security interest exemption cannot be broader in scope or less
stringent than the security interest exemption provided for in 40 CFR
part 280, subpart I.
(b) A state program will be considered to be no less stringent
than, and as broad in scope as, the federal program provided that the
state provision:
(1) Mirrors the security interest exemption provided for in 40 CFR
part 280, subpart I; or
(2) Achieves the same effect as provided by the following key
criteria:
(i) A holder, meaning a person who maintains indicia of ownership
primarily to protect a security interest in a petroleum UST or UST
system, who does not participate in the management of the UST or UST
system as defined under Sec. 280.210 and who does not engage in
petroleum production, refining, and marketing as defined under
Sec. 280.200(a) is not:
(A) An ``owner'' of a petroleum UST or UST system for purposes of
compliance with 40 CFR part 280 requirements;
(B) An ``operator'' of a petroleum UST or UST system for purposes
of compliance with 40 CFR part 280 requirements prior to foreclosure or
its equivalents, provided the holder is not in control of or does not
have responsibility for the daily operation of the UST or UST system;
(C) An ``operator'' of a petroleum UST or UST system for purposes
of compliance with 40 CFR part 280 corrective action and financial
responsibility requirements after foreclosure or its equivalents,
provided the holder complies with the requirements of Sec. 280.230(b).
(ii) [Reserved]
[FR Doc. 94-14173 Filed 6-10-94; 8:45 am]
BILLING CODE 6560-50-P
