The Phoenix I case involved issues arising under CERCLA when the City of Phoenix sought recovery from Valley National Bank ("VNB"). VNB was the trustee of a landfill. VNB held bare legal title to the landfill in its role as a trustee. It was held liable for response costs incurred in cleaning up the contaminated property solely because it held title. Id. at 566. The Phoenix I court applied an analysis based on the law of trusts.
In finding CERCLA liability applicable to trustees, the Phoenix I case referred to the legislative history of the CERCLA statute. The court relied on the House Report on CERCLA defining the term owner ". . . to include not only those persons who hold title to a . . . facility, but those who, in the absence of holding a title, possess some equivalent indicia of ownership." H.R.Rep. No. 172, 96th Cong., 2d Sess. 36 reprinted in 1980 U.S.Code Cong. & Admin.News 6119, 6160, 6181." Id. at 567.
Further, Phoenix I cites the language of CERCLA which provides that the only exception to the ownership liability under CERCLA is found in 42 U.S.C. § 9601 (20)(A). This section provides, in part, "Such term [owner] does not include a person, who, without participating in the management of a vessel or facility, holds indicia of ownership primarily to protect his security interest in the vessel or facility." For instance, a secured lender who holds title only as security could be excused from liability since the lender is only protecting its loan by possessing some indicia of ownership. That the CERCLA language does not provide for any other exclusions, led the Phoenix I court to conclude that for purposes of ownership liability the drafters of CERCLA intended that trustees be liable since they hold legal title to the trust res.
The language contained in the Phoenix I opinion addressing the issue of trustee liability is very broad. In theory it could be applied to other fiduciaries. Castlerock proposes that this court extend Phoenix I to cases involving conservators and executors. Castlerock seeks that Crocker, as conservator and later executor, be liable under CERCLA as an owner because they held legal title to the property during the time that it was contaminated.
No published case, however, has discussed the issue of whether conservators or executors may be found liable under the CERCLA definition of an owner. The case law that does exist does not differentiate clearly between the way in which conservators and executors are treated for purposes of CERCLA.
In the case at bar, Crocker held legal title to the Markham Ranch during the time it served as conservator. Crocker, however, cites Cal. Prob. C. § 1801(b): "A conservator may be appointed for a person who is substantially unable to manage his or her own financial resources . . . " for the proposition that Crocker did not actually hold title. The conservator, according to Crocker is charged with the duty of acting ". . . diligently in marshaling, taking possession of, and making inventory of the conservatee's assets. . . " Comment to Cal. Pro. C. § 2401(a). Crocker claims that since it was only holding the property for its conservatee, then it did not "own" the property.
Crocker's arguments based on this Probate Code section, however, ignore the distinction between legal and equitable title to real property. Such a distinction arises in analyzing the fiduciary relationship contained in a conservatorship. According to Cal. Pro. C. § 2101, "The relationship of a conservator to conservatee is a fiduciary relationship governed by the law of trusts." "It is a rudimentary principle of trust law that the creation of a trust divides title - placing legal title in the trustee, and equitable title in the beneficiaries." Allen v. Sutter County Bd. of Equalization, 139 Cal. App. 3d 887, 890, 189 Cal. Rptr. 101 (1983); Guardianship of Wood, 193 Cal. App. 2d 260, 266, 14 Cal. Rptr. 147 (1961).
Guardianship of Wood, supra, holds that a conservator does own bare legal title until it distributes the assets of the conservatorship to the conservatee. The court, however, finds that since a conservator is bound by the laws of the state to seek a court order to sell or convey property, the legal title of a conservator is a lesser form of title than that possessed by a trustee. Conservators and executors hold title by reason of office in contrast to a trustee who holds title by deed. All acts done by a conservator or an executor vis-a-vis property require a court's approval except where additional powers are given by the instrument which created their office. On the other hand, a trustee holds legal title for benefit of beneficiaries who have equitable title. Generally powers of a trustee are greater and broader than those of an executor or conservator. Actions of a trustee require court approval in fewer instances. The trustee obtains written title by the very trust instrument itself.
A stricter test for CERCLA liability should apply to conservators and executors because their title is much lesser than is the title held by trustees. With regard to executors, case law indicates that an executor does not even hold bare legal title to the property it administrates and later distributes to the heirs. According to Reeve v. Jahn, 9 Cal. 2d 244, 70 P.2d 610 (1937), title to the property passes immediately to the heirs upon the decedent's death. Thus, at least in the case of executors, they do not even possess bare legal title to the property they distribute. Phoenix I's proposition that all that is needed for CERCLA liability is bare legal title does not apply directly to the facts of this case. Title is important, but it is merely one factor in establishing CERCLA ownership liability in a fiduciary.
The court finds that bare legal title is not enough in determining whether a fiduciary should be held liable as an owner under CERCLA. Other factors must be considered in determining this issue. The conservators and executors must not only hold bare legal title, but must possess other indicia of ownership.
There has never been a culpability requirement for liability of owners under CERCLA. "The trigger to liability under § 9607(a)(2) is ownership or operation of a facility at the time of disposal, not culpability or responsibility for the contamination." Phoenix I at 567, citing Nurad, Inc. v. Hooper & Sons Co., 966 F.2d 837, 846 (4th Cir. 1992) and United States v. Monsanto, 858 F.2d 160, 168 (4th Cir. 1989). Further, public policy mandates that CERCLA be applied broadly in order to effect its remedial provisions. Yet, it does not necessarily follow that ownership liability can be applied in the case of every type of fiduciary.
Congress is apparently considering clarifying CERCLA liability in cases of executors and conservators.
Another potential way "ownership" liability could be proven is by showing Crocker's involvement in leasing the property known as the Markham estate. In United States v. South Carolina Recycling and Disposal, Inc., 653 F. Supp. 984, 1002-1003 (D.S.C. 1984), aff'd in part, vac'd in part, 858 F.2d 160 (4th Cir. 1988), cert denied, 490 U.S. 1106, 109 S. Ct. 3156 (1989), the court found that a lessee/sublessor could be held liable as an "owner" pursuant to § 107(a)(2) of CERCLA. The court reasoned that the defendant, as lessee/sublessor, "had control over and responsibility for, the use of the property and, essentially, stood in the shoes of the property owners." South Carolina Recycling, supra. Similarly, Crocker became involved in a lease of the ranch property. According to the evidence presented by the parties, Crocker, as conservator, held a one-half interest in a lease on the Ranch from 1974 to 1976. As part of a sales contract with Rancho Corral de Tierra, Inc., Crocker, on behalf of Lucile Markham, together with Walter Markham leased back the Ranch property from 1974 until 1977. They did this so that livestock operations could continue on the property (McMorrow Decl., Exh. 27 at WF660; Ex. 28 at M1970; Ex. 37 WF523; CSOF No. 52) As a lessor, Crocker stood in the shoes of the property owners, and therefore had control over and responsibility for the use of the property, including any cattle dipping which may have caused further contamination.
Evidence indicates that Crocker also requested and was granted the additional powers articulated in Probate Code § 1853 when it took control of the Lucile Markham estate as a conservator (McMorrow Decl., Ex. 1, 2 and 3; CSOF No 2 indicating that Crocker obtained the additional powers of Probate Code § 1853 in its petition to the Probate Court). The additional powers are set forth in former Probate Code § 1853 as follows:
[to] institute and maintain all actions and the proceedings for the benefit of and to defend all actions and other proceedings against the conservatee or the conservatorship estate; to take, collect and hold the property of the conservatee; to contract for the conservatorship and to perform outstanding contracts and thereby bind the conservatorship estate; to operate at the risk of the estate any business, farm or enterprise constituting an asset of the conservatorship; to grant and take options; to sell at public or private sale; to create by grant or otherwise easements and servitudes; to borrow money and give security for the repayment thereof; ...to alter, improve and repair or raze, replace and rebuild conservatorship property; to let or lease property for any purpose...to loan money for adequate security; ...to effect necessary insurance for the property protection or the estate, ...and to employ attorneys, accountants, investment counsel, agents, depositaries and employees and to pay the expense thereof from the conservatorship estate. Former Cal. Pro. C. § 1853
These powers articulated in former Probate Code § 1853 allowed Crocker to sell and convey property without court order. The ability to sell and convey the property is one of the most basic elements of title. Such an ability is an important indicator of ownership. Involvement in the management and operation of an estate are other indicia of ownership. The key question is whether the fiduciary could have affected the disposal of the hazardous wastes on the subject property.
An analysis of ownership requires a determination of whether indicia of ownership over and above bare legal title exist. The test for "ownership" liability under CERCLA, therefore, has become similar to test for "operator" liability under CERCLA.
The court concludes that questions of material fact clearly remain as to the issue of whether Crocker possessed sufficient indicia of ownership of Lucile Markham's estate for purposes of CERCLA liability.
iii. operator liability
Even if Crocker is not shown to be an owner, Crocker may be liable if Castlerock proves that Crocker participated in the operations of the Ranch during the time of disposal. 42 U.S.C. § 9607 (a)(2) provides that any person who ". . . operated a facility at the time of disposal. . . " may be liable under CERCLA. The Ninth Circuit has construed the term "operator" broadly. Kaiser Aluminum v. Catellus Dev. Corp., 976 F.2d 1338, 1341-42 (9th Cir. 1992), adopted the "well-settled rule that operator liability only attaches where a person had authority to control the cause of the contamination at the time the hazardous substances were released into the environment." "Authority to control" is the standard that has been adopted by most courts. See, Nurad, Inc. v. Hooper & Sons Co., 966 F.2d 837, 842 (4th Cir. 1992). The most commonly followed standard for determining liability as an operator is 'the degree of control that party is able to exert over the activity causing the pollution." H. Lewis McReynolds, Comment, The Unsuspecting Fiduciary and Beneficiary as 'Owner or Operator' of a Hazardous Waste Facility Under CERCLA, 44 Baylor L. Rev. 71, Winter, 1992.
The Eleventh Circuit, in United States v. Fleet Factors Corp., 90 F.2d 1550 (11th Cir. 1990) imposed absolute liability on a secured creditor. The court held that a secured creditor was liable for response costs because the creditor participated in the financial management of a debtor to such a degree that it most likely had a capacity to influence the treatment of hazardous wastes. See, also, "The unsuspecting fiduciary and beneficiary as owner or operator; of a hazardous waste facility under CERCLA," Comment, Baylor University Law School, Winter, 1992, H. Lewis McReynolds.
The evidence set forth below indicates to the court that Crocker may have had authority to control the ranch property from 1969-1978 and did, in fact, exercise that authority.
For instance, as discussed in the section on "ownership," according to the petition for conservatorship obtained by Crocker in 1969, Crocker sought, and was granted by the Probate court, the right to exercise the powers articulated in former Probate Code § 1853 ". . . with or without notice, hearings, confirmation, or approval of the court." (McMorrow Decl., Ex. 1, 2 and 3; CSOF No 2).
The granting of § 1853 Probate Code powers indicates to the court that Crocker had greater than normal powers as a conservator. This indicates that Crocker was or wanted to be possibly involved in the management and operation of the facilities in this case. In any event, it indicates that Crocker wanted an expanded role vis-a-vis the property. In addition, there are several other ways that Crocker has potential involvement in the operation of the estate.
Despite Crocker's claims to the contrary, there appear to remain several issues of fact as to the nature and extent of Crocker's involvement in the day to day operations of the Ranch during the conservatorship and executorship periods. According to the McMorrow Decl., Ex. 6 (M69-72), Crocker was involved in the sale of the Ranch, the appraising of the Ranch for purposes of establishing a sales price, the discussion of terms, and the preparation of the sales contract (McMorrow Decl., Ex 9 (WF 666-673) Ex. 5 at 149:19-150:6; CASSOF No. 2).
Crocker's Trust Administrator, F.W. Borst, admitted that Crocker had a fiduciary duty to manage and protect the community real property assets that were a part of the conservatorship. McMorrow Decl. Ex. 5 at 33:19-35:6; CSODF No. 15). Borst understood that he had the following duties: (1) to inspect the property periodically; (2) to ensure that the property did not become run down; (3) to ensure that there was not a diminution in value of the real property; (4) to ensure that the property was taken care of; and (5) to make sure that the property carried liability insurance. Id.
The court finds that adequate evidence has been offered by Castlerock to raise issues of material fact as to Crocker's liability as an operator.
3. Can Castlerock reach the corporate assets of Wells Fargo?
The court finds that questions of material fact do exist as to Crocker's liability under CERCLA. Therefore, the court now reaches the issue of whether Castlerock can seek recovery from the corporate assets of Wells Fargo.
City of Phoenix, Ariz. v. Garbage Services Co., 827 F. Supp. 600 (D.Ariz. 1993), ("Phoenix II"), involves the same parties and facts as does Phoenix I, discussed supra. Phoenix II, however, it addresses the issue of whether the trustee of a contaminated landfill may be held personally liable or whether its CERCLA liability is limited to the amount of trust assets that are available to indemnify the trustee.
Phoenix II, supra, at 605 sets forth the following guidelines to apply in analyzing a trustee's CERCLA liability:
(1) Where a trustee is held liable under subsection 107(a)(1) as the current owner of contaminated property, the trustee's liability is limited to the extent that the trust assets are sufficient to indemnify him.
(2) Where a trustee is held liable under subsection 107(a)(2), but the trustee did not have the power to control the use of trust property, the trustee's liability is limited to the extent that the trust assets are sufficient to indemnify him.