Bruce Taterka


This article analyzes the confusion which has surrounded CERCLA's secured creditor exemption and innocent landowner defense. This confusion is primarily centered on the phrases "participation in management" as used in the security interest exemption, and "all appropriate inquiry" as used in the innocent landowner defense. These phrases are undefined by CERCLA, and the case law has provided conflicting interpretations. As a result of this uncertainty, no clear guidelines exist by which environmentally diligent real estate lenders and purchasers can insulate themselves from potential CERCLA liability. The author, however, notes that recent regulatory and private sector activity marks a trend toward clarifying the defenses. The article reviews proposed legislation and regulations defining the terms of the defenses, and discusses the policy implications of the proposed schemes. It is also noted that industry standards for conducting property transfer environmental audits are developing, providing meaning for the phrase "all appropriate inquiry." The article concludes that as the statutory defenses are maturing confusion is subsiding, and that new regulations and the emergence of industry standards should provide guidelines within which truly "innocent" lenders and purchasers can operate in the future without the unreasonable fear of CERCLA.