Transcript Case Law Updates on Lender Liability

Case Law Updates on Lender
and Fiduciary Liability
Presented by Richard M. Fil, Esq.
EBA Conference, St. Paul, MN
June 2002
B O S T O N
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H A R T F O R D
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N E W
L O N D O N
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S T A M F O R D
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G R E E N W I C H
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N E W
Y O R K
Background
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Potential Liability as Owner / Operator
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Pre-1996 Case Law
EPA Regulations / Guidance
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EPA’s lender liability regulations
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Treatment by the courts
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EPA / DOJ response
Asset Conservation, Lender Liability, and Deposit
Insurance Protection Act of 1996
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More clearly defines exemption under definition of
“owner or operator”
– Must hold “indicia of ownership primarily to protect the
security interest”
– Defines “participation in management” of the facility
Acts Which May Trigger Liability
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May avoid liability UNLESS the person:
– Actually participates in the management or operational affairs (not
mere capacity to do so)
– Undertakes decisionmaking control over
environmental compliance
– Exercises control comparable to a manager
Exceptions to Definition of
“Participate in Management”
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Abandoning or releasing an interest
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Requiring environmental compliance, including appropriate
response actions
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Monitoring or inspecting property
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Providing financial advice
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Restructuring terms and conditions of the security interest
Avoiding Liability Through Foreclosure
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At the “earliest practicable, commercially reasonable time, on
commercially reasonable terms”:
– Sell, re-lease, or liquidate the property; or
– Prior to sale or disposition:
• Maintain business activities, wind up operations, or undertake
certain response actions, or
• Take “any other measures to preserve, protect, or prepare” the
facility for sale
Other Definitions
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Extension of credit
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Financial or administrative function
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Foreclosure
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Lender
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Financial or administrative function
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Operational function
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Security interest
RCRA Implications
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Similar exclusions from potential liability related
to sites with USTs
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Person must not “otherwise [be] engaged in petroleum
production, refining, or marketing”
Protection of Fiduciaries
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Exemptions also provided for “fiduciaries”
(trustees, executors, custodians)
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Does not apply to negligence causing or contributing to a release
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Does not apply to trusts created to maintain business activities
for profit
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Does not apply to a person acquiring ownership or control
to avoid liability
Other Caveats for Fiduciaries
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Protections do not apply to:
– Fiduciary who is a beneficiary and receives
“extraordinary compensation”
– Acts outside of the fiduciary capacity
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Protection is limited to fiduciary; the assets
of the estate may be at risk
Current Guidance
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“Policy on Interpreting CERCLA Provisions Addressing Lenders
and Involuntary Acquisitions by Government Entities,” 62 Fed.
Reg. 36424 (July 7, 1997, effective June 30, 1997)
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“CERCLA Lender Liability Rule,” 57 Fed. Reg. 18344 (April 29,
1992)
Post-1996 Case Law
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Federal
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State
The Top 10 Reasons
You Are Still Vital to Your Institution
10.
Guidelines for exemptions must still be followed

Keep reading the statute

Avoid control over waste handling and decision-making

Dispose of property as directed

EPA guidance is not binding
The Top 10 Reasons
You Are Still Vital to Your Institution
9. Burden of proof is on party claiming exemption
 Need to prepare and document efforts / compliance
 Overcome “broad remedial purpose” of CERCLA
The Top 10 Reasons
You Are Still Vital to Your Institution
8. Fiduciary Negligence
 Get to know your private bankers
 Let them know what you can do for them
The Top 10 Reasons
You Are Still Vital to Your Institution
7. Angry and Litigious Beneficiaries
 Assets of estate / trust still at risk
 Beneficiaries may pursue recovery of lost assets
The Top 10 Reasons
You Are Still Vital to Your Institution
6. Limited Case Law
 New statute; not many cases decided
 Lack of clear precedent may result in significant variations
 Banks are still attractive defendants
The Top 10 Reasons
You Are Still Vital to Your Institution
5. Potential Liability Under Other Federal Programs
 TSCA
 RCRA
 CWA
The Top 10 Reasons
You Are Still Vital to Your Institution
4. Potential Gaps Under State Law
 Most states have similar exemptions, but variations may exist
in:
• Language
• Application / interpretation
 Other forms of liability may attach
• Lead paint
• Consumer protection
 Increasing role of states in enforcement actions
The Top 10 Reasons
You Are Still Vital to Your Institution
3. Common Law Claims
 Exemptions do not necessarily negate common law claims
 Often joined with state and/or federal statutory claims for a
“belt and suspenders” approach
The Top 10 Reasons
You Are Still Vital to Your Institution
2. Limitations on Insurance Coverage
 Limits may not cover all claims
 Policy / exclusions may not cover all types of claims
 Voluntary action may be prudent to limit overall costs
 Existing coverage may lapse / no longer be available in the
future
The Top 10 Reasons
You Are Still Vital to Your Institution
1. Nuisance Value / Avoiding Litigation
 Number of reported cases are far fewer than those brought or
settled
 Following the considerations noted above will better position
your institution to more favorably resolve claims