Your father and mother were the owners of Trusted Plating. Trusted Plating has been operating as a plating company since the 1940's. Trusted Plating has never been a major company, but it has provided your parents with a comfortable living, and it put you through business school. After graduation, you went to work for a national bank, and have been very successful at your chosen career.
Twenty-five years ago, your father died, and as the businessman of the family, you were the executor of your father's estate. Your father and mother, as part of an estate-planning program, set up trusts for the purpose of avoiding estate taxes. Upon your father's death, your father's estate was put into a trust for the befit of your mother. You were named the trustee under the trust, and you are now responsible for managing the assets that were put into the trust for your mother's benefit. The assets placed into the trust included the family business, Trusted Plating, and the real estate on which it operates. The trust that your father created provided that money from the trust was to be given to your mother as needed, but the trust assets were to be administered by you, the trustee. You turn out to be an amazing businessman. You converted six hundred thousand dollars in assets into over eight million dollars in assets. Everything is going smoothly, until yesterday.
Yesterday, you were notified that high levels of chromium and arsenic were detected in the public drinking water wells approximately one mile from your facility. U.S. EPA wanted to meet with you regarding past activities on the Trusted Plating property. You agree to a meeting with U.S. EPA, and a tour of the facility is undertaken. While touring the facility, you advise U.S. EPA that to save money on disposal costs, you authorized the burial of sludge on the property during 1974, 1975 and part of 1976. You explain to U.S. EPA representatives that as soon as this type of disposal became illegal under the Resource Conservation and Recovery Act (RCRA) 42 U.S.C. § 6901, et seq., you stopped the sludge disposal immediately. U.S. EPA then requests access to the site for purposes of determining the extent of any remediation necessary to eliminate the source of the groundwater contamination. You agree to provide the access requested, and U.S. EPA begins testing with the understanding that the cost of testing will be reimbursed from the trust assets.
Six months later, you meet with U.S. EPA again. At the meeting, U.S. EPA explains that the remediation necessary to protect human health and the environment will be extensive and costly. The total cost of the remediation required by U.S. EPA will be in the neighborhood of twelve million dollars. You explain to U.S. EPA that there is no way the assets of the business could fund such a remediation. U.S. EPA asks you to list the assets held in trust. You provide a detailed listing of the trust assets to U.S. EPA. You explain to U.S. EPA that you have administered the trust for your mother during the last ten years, and that you took a very small company and turned it into over eight million dollars in assets. However, you realize that the assets are gone now, and you thank goodness that your father separated the company from the rest of your mother's assets by putting it into a trust upon his death. U.S. EPA asks how you were able to grow the company to eight million dollars in trust assets. You proudly explain that as trustee, you personally were involved in the administration of the trust and the operation of the business. U.S. EPA then announces that you will personally have to pay for any amounts not covered by the trust for the remediation. You explain to U.S. EPA that you are not about to pay personally for the cleanup with your own money. U.S. EPA suggests otherwise, and you suggest that it is time to get the lawyers involved.
You contact an environmental attorney, explain that you are the trustee of the assets in a trust, and that U.S. EPA wants you to pay for cleaning up property where your only interest was to be the trustee. You explain to your environmental attorney that you have never taken a dime out of the company or out of the trust. You do not see how U.S. EPA could expect you to use your personal assets to remediate the trust property. You ask your environmental attorney to explain how you could possibly be held responsible for a remediation when you were only the trustee of the property.
Your environmental attorney explains that trustees face possible liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, because, as holders of legal title to property, they may be "owners" or "operators" of CERCLA facilities, 42 U.S.C § 9607(a)(1), (2). You ask your attorney to explain how you could be considered an "owner" or "operator" when you were simply the trustee.
Your attorney explains that a trust is used for ownership of property in which the legal and beneficial interests in the property are separated: The trustee holds legal title to the property for the benefit of the beneficiary. Your mother, who is the beneficiary of the trust property, has no legal ownership of the trust property. This is why separating an estate avoids certain estate taxes, but that is not what is important to U.S. EPA. What is important to U.S. EPA is who is the "owner" or "operator" of the trust assets for CERCLA purposes. Trustees are liable for obligations incurred in the administration of a trust to the same extent as if the property were held free of trust. Restatement (Second) Of Trusts § 261 (1959). Consistent with this, trustees may be held personally responsible for liabilities committed in the administration of a trust. Id. § 264. The rationale for holding trustees liable is essentially that because the trustee is acting as the representative of the trust, the trustee is responsible for his or her conduct with respect to the administration of the trust. The trustee's liability attaches regardless of the fault or lack of fault of the trustee.
You give the environmental attorney a copy of the document that created the trust and ask him if the provision in the trust agreement regarding indemnification would protect you. Your environmental attorney explains that although ordinarily the trustee may obtain indemnification from trust assets for acts within his or her official capacity, if the assets of the trust are insufficient, the trustee's personal assets can still be attached to pay for the liability.
Your environmental attorney explains that if the trustee merely held title to the trust assets, the trust assets only would be used for purposes of paying for the remediation. However, when the trustee has power under the particular trust instrument to control the uses of the trust property, and the trustee allowed disposal of hazardous substances, he or she is more than a mere titleholder and the trustee's liability extends beyond the trust assets. Thus, your environmental attorney explains that since you were responsible for administering the trust, which included overseeing the operation of Trusted Plating during 1974, 1975, and 1976 when the disposal occurred, U.S. EPA can legally require you to pay personally to remediate the property.
You are astounded. You ask your environmental attorney if it would be possible to make U.S. EPA get the money from your eighty-six year old mother. After all, she received all the income from the trust; you were only the trustee because your father wanted you to take care of the business to provide for your mother. Your attorney explains that since your mother neither owned nor operated the trust during the time when disposal occurred, your mother will not have any liability, even though millions of dollars were given to her out of the trust.
You look at your environmental attorney, and with a tear in your eye, you tell him how your father never hurt you when he was alive. Who ever thought that twenty five years after he died, something he did would hurt you so much?
There is very little case law regarding what action U.S. EPA will take with respect to CERCLA liability of a trustee. However, most of the case law holds a trustee individually liable as an "operator" if the trustee takes an active role in administering trust assets during disposal activities. Therefore, with respect to CERCLA liability, the crucial question for trustees is: Do you have the authority to control the use of the trust property, or do you merely hold title? The difference in the answers to this question could represent a significant difference in potential liability.
As with any legal matter, you should always consult with your attorney. The above information, while deemed accurate by the author, should not be relied upon. Each set of facts and circumstances will be different and may lead to a different legal conclusion.
Mike Murphy - PLEASE NOTE: As a follow-up to last month's article, the following might be inserted as a sidebar/follow up. You decide.
The Supreme Court in Steel Company, Aka Chicago Steel And Pick- Ling Company, Petitioner V. Citizens For A Better Environment (Case No. 96-643), decided March 4, 1998 confirmed and upheld last month's article on EPCRA violations and citizen suits. The Supreme Court ruled that wholly past violations of EPCRA do not subject the violator to citizen suit liability. The opinion stated, "[W]e must conclude that respondent lacks standing to maintain this suit, and that we and the lower courts lack jurisdiction to entertain it. However desirable prompt resolution of the merits EPCRA question may be, it is not as important as observing the constitutional limits set upon courts in our system of separated powers. EPCRA will have to await another day. Justice Stevens, in a well-written concurring opinion stated "[B]ecause EPCRA, properly construed, does not confer jurisdiction over citizen suits for wholly past violations, the Court should leave the constitutional question for another day."