## Facts

- Harmon bought industrial property in Skowhegan, Maine, financed by a mortgage from Key Bank.
- Doran leased the property from Harmon.
- After Harmon defaulted, Key obtained a state-court judgment of foreclosure and order of sale and planned an auction.
- Before the auction, Key hired a consultant to perform an environmental site assessment.
- Key prepared an auction disclosure stating it had no knowledge of hazardous materials on the property.
- Key received the assessment before the auction; it indicated potential groundwater contamination.
- Key did not disclose the assessment results to bidders before the auction.
- Doran made the high bid at auction and signed a purchase and sale agreement.
- Key declined to finance Doran’s purchase, citing the assessment; Doran obtained other financing and acquired the property from Key by quitclaim deed.
- After purchase, Doran notified the state environmental agency; cleanup-related costs were assessed against Doran as the “owner.”
- Doran sued Key under CERCLA to shift all or part of the response costs to the bank.

## Issues

1. Whether CERCLA imposes liability on a secured creditor that forecloses and sells contaminated property based solely on the creditor’s knowledge of potential contamination at the time of sale.
2. Whether CERCLA provides a cause of action allowing a purchaser to recover response costs from such a creditor despite the statute’s security-interest holder exemption.

## Decision

- The First Circuit affirmed the Rule 12(b)(6) dismissal for failure to state a CERCLA claim.
- Key’s alleged knowledge of potential contamination and failure to disclose it to bidders did not, by itself, make Key liable as a CERCLA “owner” or “operator.”
- Key’s foreclosure and resale conduct fell within CERCLA’s secured-creditor (security-interest holder) exemption on the pleadings.
- The court declined to recognize an implied CERCLA cause of action against the bank based on nondisclosure/misrepresentation theories.

## Legal Principles

- CERCLA liability for response costs generally turns on statutory status (e.g., “owner,” “operator”) and qualifying conduct, not mere awareness of contamination.
- A secured creditor holding indicia of ownership primarily to protect its security interest, and not participating in management, is not treated as an “owner or operator” for CERCLA liability.
- Foreclosure, arranging sale of collateral, and conveying property (without managerial control of facility operations) do not alone defeat the secured-creditor exemption.
- CERCLA does not create a purchaser’s standalone right to recover response costs from a foreclosing lender solely because the lender knew of contamination and did not disclose it at sale.

## Conclusion

The court held that a foreclosing bank’s knowledge of potential contamination and nondisclosure to bidders did not create CERCLA liability where the bank acted to protect its security interest and did not participate in facility management; the purchaser therefore failed to state a CERCLA claim for shifting cleanup costs to the bank.


Northeast Doran, Inc. v. Key Bank of Me., 15 F.3d 1 (1st Cir. 1994)