Daily Development for Friday, September 7, 2001

Daily Development for Friday, September 28, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

This item also is derived from Larry Schnapf's Environmental Law Newsletter.

HAZARDOUS SUBSTANCES; CERCLA; TRUSTEE LIABILITY: District court rules bank trustee not liable under CERCLA.

CanadyneGeorgia Corporation v. Bank of America (No. 5:96CV1141) (M.D. Ga. August, 2001)

The Asset Conservation, Lender Liability, and Deposit Insurance Act of 1996 expanded the scope of the CERCLA secured creditor's exemption to include financial institutions acting as fiduciaries. Under the amendments, a fiduciary who is liable as a CERCLA owner can only be liable to the extent of the assets held in a fiduciary capacity and may not be personally liable.

However, there is a negligence exception which provides that the limitation on fiduciary liability will not apply if the fiduciary negligently caused or contributed to the release or threatened release of a hazardous substance.

The Federal District Court in this case ruled that a plaintiff had not shown that the bank had acted negligently and "caused or contributed" to the release of hazardous substances.

In this case, a predecessor of the defendant served as a coexecutor and cotrustee of the J.W. Woolfolk Trust from 19451972. The assets of the trust included a general partnership that owned in the Woolfolk Chemical Works, Ltd, a pesticide manufacturer.

Between 1990 and 1995, the plaintiff was ordered to remediate contamination at the pesticide plant and to pay for the relocation of residents living near the site.

The plaintiff then filed a suit to recover its response costs under CERCLA, the Georgia superfund law and common law. The plaintiff brought its claims against the bank in its individual capacity as the trustee and executor of the trust but not as a representative of the trust.

The plaintiff alleged that the bank served as trustee during the time that hazardous substances had been released at the site.

The defendant bank filed a motion to dismiss on the grounds that it was not a liable person under both CERCLA and the state superfund law. The district court granted the motion but the Court of Appeals for the Eleventh Circuit reversed the district court ruling in August 1999. Since the complaint alleged that the bank had negligently caused the release of hazardous substances, the court found that the complaint satisfied the very low threshold that is required for surviving motions to dismiss. In so holding, the court made it clear that it was not suggesting that the bank was liable under CERCLA. The court added that the bank would be free to bring a motion for summary judgment once discovery had been conducted on whether the bank undertook particular negligent acts that caused or contributed to the release of hazardous substances. The court noted that the negligence exemption required some action because the bank had no duty to prevent someone else from releasing hazardous substances.

Following limited discovery, the bank filed a motion for summary judgment with the district court. Once again, the plaintiff argued that the defendant bank should be liable under CERCLA because it breached its affirmative duties under Georgia statutory and common law to prevent pollution at the site. However, the court ruled that the appeals court had implicitly rejected this argument when it held that the plaintiff would have to present evidence that the bank had acted negligently. The district court found that the bank had presented evidence showing it did not take any negligent actions that caused or contributed to a release. In contrast, the court noted that the plaintiff had not presented any affirmative evidence rebutting the bank's evidence. Even if the bank could be viewed as an indirect owner of the site through its fiduciary capacity, the court ruled that the secured creditor exemption would insulate the bank from liability because the plaintiff had not presented any evidence showing that the negligence exemption applied. Accordingly, the district court granted that bank's motion for summary judgment.

Reporter's Comment: This case shows how easy it may be for a plaintiff to keep a bank in a CERCLA case. While the bank ultimately prevailed in this case, it was forced to incur litigation costs to demonstrate that it is entitled to the fiduciary exemption.

Moreover, because many state superfund laws may have different tests for determining fiduciary liability, banks may also have to defend state superfund claims even if it survives a CERCLA claim.

The trust and estate departments of financial institutions should review the standards for fiduciary liability in states where they administer estates that contain operating businesses.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named "Brokerdirt." But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/