In a victory for banks, a federal judge has severely limited the liability of trustees for environmental cleanups. Judge Duross Fitzpatrick of the U.S. District Court in Macon, Ga., ruled last month that NationsBank does not have to pay to remove contaminated soil at a pesticide plant even though it maintained trust accounts that held an interest in the polluter.
Canadyne-Georgia Corp. sued the lender in 1996, charging that the trust department at a precursor to NationsBank helped run the plant for nearly 50 years.
The company asked the court to force the bank to pay part of the $50 million cleanup bill and share liability in a toxic tort suit brought by more than 600 former plant employees and neighbors.
NationsBank denied any responsibility, arguing that it was merely following its fiduciary duties as a trustee for the estate of the company's founder.
The judge sided with NationsBank, ruling that a bank that is operating as a trustee for a business in accordance with the terms of a will is merely carrying out its fiduciary duties and is not considered an owner of the enterprise. Because it is not an owner, the bank is not liable for the environmental cleanup bill, the judge said.
"This decision is important to the banking industry because it protects trustees from individual liability for environmental cleanup costs," said R. Wayne Thorpe, a partner in the Atlanta office of Alston & Bird law firm who represented NationsBank. "Prior to this, district courts in Arizona and California had reached an opposite result."
The decision is not expected to be the last word on the case. In an unusual move, Judge Fitzpatrick urged the U.S. Court of Appeals for the 11th Circuit to review the decision. "There is a substantial ground for difference of opinion, and an immediate appeal from this matter may materially advance the ultimate termination of the litigation," the judge wrote in his Nov. 10 order.
Lawyers said a federal appeals court has never ruled on trustee liability for environmental contamination so a decision by the Atlanta- based panel could establish a nationwide precedent.
The appeals court also could decide to review a 1996 law that limited the liability of lenders for environmental damage. Judge Fitzpatrick ruled that the 1996 law-which has never been reviewed by a court-was not applicable in this case.
"This case deserves watching," said Thomas J. Greco, associate general counsel at the American Bankers Association.
"The chances are pretty high that the appeals court will take the case."
The case's origins date back to 1921 when John W. Woolfolk opened a chemical company. After Mr. Woolfolk's death in 1942, his heirs pooled their shares in a trust maintained by Fulton National Bank of Atlanta, which after changing its name was bought by NationsBank in 1996. Fulton National also provided banking services to the chemical company, extending lines of credit and promissory notes.
From 1925 to 1972, the company produced a variety of compounds that included arsenic, which the government classifies as a hazardous substance. The arsenic and other toxic substances contaminated the soil. "The negligent releases of hazardous substances at the facility over time caused physical harm, damage, and waste," the plaintiffs charged in their revised August 1997 complaint.
After the plant passed through several owners, the Canadyne-Georgia Corp. bought it in 1984 and began cleaning the site. Despite these efforts, the Environmental Protection Agency added it to the Super Fund list in 1990 and ordered the company in 1993 to relocate nearby residents so their properties could be decontaminated.