Monday
June 13, 1994
Part III
Environmental
Protection Agency
40 CFR Parts 280 and 281
Underground Storage Tanks—Lender
Liability; Proposed Rule
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30448
Federal Register / Vol. 59, No. 112 / Monday, June 13, 1994 / Proposed Rules
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 280 and 281
[FRL-4895-3]
RIN205Q-AD67
Underground Storage Tanks—Lender
Liability
AGENCY: Environmental Protection
Agency.
ACTION: Proposed rule.
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 Agefacy 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 FR18349).
Tho 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 (5*05), 401M
Street, SW., Washington, DC 20460. The
Docket is located at 401M 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.
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
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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Federal Register / Vol. 59, No. 112 /Monday, June 13, 1994 / Proposed Rules 30449
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, hi
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, hi 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; § 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 hi
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 § 280.31.
2. Leak Detection * , ....
In addition to meeting the leak
prevention requirements, owners arid
operators of USTs must use a method
listed in §§ 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
'••" ' -• ' > ' : ' ,-•-•...,...,> ':.u'i, i ,-.'»',;•'
UST owners and operators must, in
accordance with § 280.50, report to the
implementing agency within 24 hours,
or another reasonable time period
specified by the implementing agency,
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30450 Federal Register / Vol. 59, No. 112 / Monday, June 13, 1994 / Proposed Rules
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
cither 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
cither the performance standards for
now 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 tho 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
S 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 §§ 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,
§§ 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:
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30451
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 (§ 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).
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 maybe
necessary to protect human health and
the environment." 3
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
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.
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[edj statutory authority to restrict by regulation
private rights of action arising under the
statute. . ." Kelley, slip op. at 3. As noted above,
§ 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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liability addresses only aimers 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
rulomaking 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)(9j, 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 responsibih'ty
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 El. 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
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30453
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]. White & R. Summers,
Handbook on the Uniform Commercial
Code § 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 hi 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
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tho 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., pro-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
tho 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
tho borrower's environmental
compliance. If so, the holder is
"participating in the management" of
the UST or UST system as defined in
tho 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 ofthe general
test, a holder cannot remain within the
scope ofthe 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 ofthe 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
ofthe 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 ofthe 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 ofthe 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 ofthe 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
RGRA 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
ofthe 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 (llth 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. Mcolet, 29 Envtl. Rep.
Gas. (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
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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 sucn 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
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
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"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) loon work ouf. 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
tost. 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 properly 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
denning "fair consideration" and
specifying when the foreclosing holder
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30457
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
Eroperty, if at any time after six months
jllowing 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
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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 n. 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.
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
••Under RCRA Subtitle 1, being an "operator" is
not synonymous with "participating in the
management" of ui UST or UST system. Section
0001(3)—Definitions and Exemptions—defines the
term "operator" to mean "any person in control of,
or having responsibility for, tho daily operation of
tho UST system." A person may, without being an
"operator" of an UST or UST system, be sufficiently
Involved so as lo bo participating in the
management (as that term Is defined elsewhere in
this proposal) of an UST or UST system.
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 seeming 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 § 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
(§ 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
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30459
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
§§ 280.71 through 280.74, Subpart G—
Out of Service UST Systems and
Closure. A holder who chooses to
temporarily'dose 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
§ 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
§ 280.20 for new UST systems or the
upgrading requirements in § 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 §§ 280.71
through 280.74 or perform a site
assessment in accordance with
§ 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 § 280.20 for new UST
systems or § 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
§ 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
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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
§ 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
§ 280.52, despite the reference to that
provision in § 280.50. The release
reporting requirement of § 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, § 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 §§ 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 § 280.50 but is not subject
to the release investigation and
confirmation requirements in §§ 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, ttie 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
5 For example, where the lender is permitted
pursuant to the loan document or under applicable
state laws.
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).
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,
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30461
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 arid 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-
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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
§ 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
§281.21(aK3) 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:
where:
im«i«t=PrevaiHng interest rate on UST-
related loans
i=Risk-free rate of return
tbsRlsk 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:
rmark« (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;
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30463
(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: Junes, 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, 699ld, 6991e, 6991f, 6991h.
2. Part 280 is proposed to be amended
by adding subpart I consisting of
§§ 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
§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 § 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 § 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 § 280.200(c)) primarily to
protect a security interest (as defined in
§ 280.200(f)(l)) 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
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Federal Register / Vol. 59, No. 112 / Monday, June 13, 1994 / Proposed Rules
Indicia are held must be as protection
for a security interest.
§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:
(l) 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) Exorcises 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
§ 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
§ 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 § 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
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3O465
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 § 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 § 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.
fi) 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) Aiiolder 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 §§ 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 affair 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.
§ 280.220 Ownership of an underground
storage tank or underground storage tank
system.
(a) Ownership of an UST or UST
system far 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 §§ 280.51
through 280.67, provided the person:
(1) Does not participate in the
management of the UST or UST system
as defined in § 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 § 280.210; and
(2) Does not engage in petroleum
production, refining, and marketing.
§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
§§ 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
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Federal Register / Vol. 59, No. 112 / Monday, June 13, 1994 / Proposed Rules
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 §§ 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 §§ 280.71
through 280.74, except § 280.72(b); or
(ii) Temporarily close the UST or UST
system In. accordance with the
applicable provisions of §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 § 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 § 280.20 for
now UST systems or the upgrading
requirements in § 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
§280.71 through 280.74, except
§ 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 § 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 § 280.230(b).
§ 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.
§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 § 280.210;
(b) Does not engage in petroleum
production, refining, and marketing as
defined in § 280.200(b); and
(c) Complies with the requirements of
§ 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:
§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
§§ 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 § 280.210 and who does not
engage in petroleum production,
refining, and marketing as defined
under § 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 § 280.230(b).
(ii) [Reserved]
[FR Doc. 94-14173 Filed 6-10-94; 8:45 am]
BILLING CODE 6580-50-P
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