Court Finds that Passive Trustee Property Owner Not Liable for Lead Paint Poisoning

EXECUTIVE SUMMARY

  • A party must be served in the legal capacity in which the party is sought to be obligated.
  • Trustee is personally liable for a tort only if the trustee is personally at fault.
  • Even as record title owner, a trustee of property that only acts passively with respect to the property (i.e., not engaging in the active real estate business), is not personally liable in tort.

Court Finds that Passive Trustee Property
Owner Not Liable for Lead Paint Poisoning

Mary F. Lundstedt, Esq., Associate

Michele R. Kendus, BSN, JD

Recently in Hector v. Bank of N.Y. Mellon,[1] the Maryland Court of Special Appeals considered the issue of whether a bank, as the trustee of a property in Baltimore City, could be liable in its individual capacity for alleged injuries caused by exposure to lead-based paint at the property. The court held that the bank was not liable in its individual capacity, because the bank's role was entirely passive (i.e., merely acting as title holder), and appellants presented no facts to establish that the bank was personally at fault for their alleged injuries. [1] Individuals pursuing claims for personal injury in toxic tort and other premises liability cases should consult with an experienced litigator to ensure they carefully and correctly identify the proper defendant responsible for their harm. And trustees are well-advised to seek advice from a qualified litigator to ensure that they understand and maintain their position as passive title holder to protect against potential liability in personal injury claims .

Facts

In 1999, a company purchased a Baltimore City property (Property) and entered a 99-year lease with a lessee (Lessee) pursuant to a purchase money deed of trust, which was secured by Property. This security was pooled along with hundreds of other loans into a trust (Trust). Trust was established when Bank of New York Mellon (BNYM) and other parties executed a Pooling and Servicing Agreement (PSA). Such PSA defines the parties' rights and responsibilities regarding management and control of Trust.

In 2001, Lessee defaulted on the loan. Trust appointed substitute trustees to begin foreclosure proceedings. In December of 2001, BNYM, as Trustee, bought Property at the foreclosure sale. During 2002, BNYM, again as Trustee, moved for and received possession of Property.

Appellants filed an initial complaint claiming that they were exposed to and ingested lead-based paint at Property during childhood, from 2001 to 2002, which allegedly caused them serious and permanent injuries due to lead poisoning.

During the time appellants were allegedly exposed to lead-based paint at Property, it was owned by Trust, of which BNYM was Trustee.

On June 10, 2016, appellants filed an amended complaint to add BNYM, in its individual capacity, as a defendant. The amended complaint alleged that: (1) BNYM was the property's "owner" as defined by the Baltimore City Housing Code (Housing Code), and (2) as the owner, BNYM was negligent, [3] either individually or via its agents or employees, in its duty to manage, supervise and maintain Property per the Housing Code requirements that are intended to reduce exposure to lead-based paint.

BNYM moved for summary judgment, arguing that appellants had incorrectly combined BNYM's trust capacity and individual capacity. According to BNYM, it was only involved with Property in a trustee capacity; it was not an "owner" as defined by either the Housing Code or Maryland statute, and it was, therefore, not personally liable for any of appellants' alleged injuries.

The circuit court granted BNYM's motion for summary judgment, and simultaneously granted appellants leave to amend their complaint to name BNYM as Trustee rather than individually. Appellants then filed a second amended complaint, but they again named BNYM in its individual capacity, rather than as Trustee. BNYM filed a motion to strike or dismiss appellants' second amended complaint. The circuit court granted BNYM's motion, because it had already granted summary judgement in favor of BNYM in its individual capacity and found no reason to reconsider that order. Appellants timely appealed.

Applicable Law and Analysis

Citing Hooke v. Equitable Credit Corp.,[2] the court first emphasized the legal significance of the clearly recognized distinction between a party in its individual capacity and that same party's representative capacity. Specifically, the court explained that it adheres to the principle that "a party must be served in that legal capacity in which he is sought to be bound."[3]

Next, the court considered whether a trustee may be personally liable under Md. Code, Est. & Trusts §14.5-908, which provides:

(a) Except as otherwise provided in the contract, a trustee is not personally liable on a contract properly entered into by the trustee in the fiduciary capacity of the trustee in the course of administering the trust if the trustee in the contract disclosed the fiduciary capacity.

(b) A claim based on a contract entered into by a trustee in the fiduciary capacity of the trustee, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administering a trust, may be asserted in a judicial proceeding against the trustee in the fiduciary capacity of the trustee, regardless of whether the trustee is personally liable for the claim.

Noting that it was unaware of any existing appellate court interpretations of Md. Code, Est. & Trusts §14.5-908(b), the court lamented that subsection (b) doesn't really clarify the circumstances that could create personal liability on the part of the trustee.

As such, the court reviewed the Restatement (Third) of Trusts (2012) for guidance and took note of its statement that a trustee is personally liable for a tort only if the trustee is personally at fault.[4] Finding the Restatement's comments equally convincing, the court determined that the Restatement "unequivocally" provides that a trustee must be personally at fault to be held liable for claims sounding in tort. However, the court found no guidance from the Restatement to define "personally at fault."

The appellants, citing Allen v. Dackman,[5] contended that BNYM was an "owner" under the Housing Code and, thus, personally liable for their injuries, but the court was unpersuaded. Instead, the court reasoned "that even if BNYM as Trustee qualified as an 'owner' under the Housing Code, that determination does not mean that the trustee is personally liable in tort."[6] The court, instead, turned to its opinion in another lead paint case, Shipley v. Perlberg, which concluded that a corporate officer and director (Perlberg) was not an "owner" of a property under the Housing Code because Perlberg "had no direct involvement" with the property.[7] Based on this analysis, the court determined that though BNYM was the record title owner, its only involvement, as trustee, with the Property was passive-i.e., it was not engaged in the active real estate business. The court explained:

BNYM as Trustee had no responsibility to manage or maintain any

properties owned by the trust, and because it did not engage "in the active real estate business," it could not have been personally at fault for any negligence regarding the Property itself.[8]

Conclusion

Significantly, Hector v. Bank of N.Y. Mellon[9] clarifies that a trustee, even as record title owner to property, is not personally liable in tort if the trustee's involvement with the property was entirely passive. Victims of toxic torts and other premises liability claims in Maryland are encouraged to consult with an experienced litigator who understands the proper capacity in which to serve a party. The case should also prompt trustees to seek advice from an experienced attorney who understands the distinction between trustees as passive title holders and those trustees who may be deemed personally at fault.

If you find yourself in a similar situation or have any questions, call Frost & Associates, LLC today at 410-497-5947.


[1] No. 3100, 2020 BL 30411 (Md. Ct. Spec. App. Jan. 29, 2020).

[2] 33 Md. App. 437, 365 A.2d 594 (1976)

[3] Hector, at 5 (citing Hooke v. Equitable Credit Corp., at 443.)

[4] Id. at 6.

[5] 413 Md. 132, 991 A.2d 1216 (2010).

[6] Hector, at 8-9.

[7] 140 Md. App. 257, 262 (2001).

[8] Id. at 11.

[9] No. 3100, 2020 BL 30411 (Md. Ct. Spec. App. Jan. 29, 2020).

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