Case Law Updates on Lender Liability
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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)
•
“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