Passive Trustee Does Not Have Liability for Lead Paint Poisoning
In a recent decision, the Maryland Court of Special Appeals (CSA) held that a passive trustee of a securitization trust did not have liability for lead paint poisoning.
In this case, a bank that was appointed trustee of a securitization trust that owned a Baltimore City house acquired through foreclosure was sued in its individual capacity by the house’s former occupants for negligence as a result of lead paint poisoning. Under the terms of the trust, the trustee was given only passive duties, such as distributing cash to certificate holders and relaying information from the loan servicer. This compares with managerial duties, which were the responsibility of the servicer.
The Circuit Court for Baltimore City granted the bank’s motion for summary judgment on the basis that if the bank was to be sued, it should have been sued in its capacity as trustee, not in its individual capacity. On appeal, the CSA affirmed the circuit court’s decision.
The CSA first considered whether the trustee’s status as an “owner” under the Baltimore City code imposed personal liability on it. An owner of a Baltimore City property is responsible for compliance with all provisions of the code, including lead paint abatement. The definition of “owner” is broad and includes anyone in control of the record owner of the property.
In ruling that the trustee did not have personal liability, the CSA distinguished a 2010 decision of the Court of Appeals, Allen v. Dackman, 413 Md. 132 (2010). In that case, the Court of Appeals imposed personal liability on an individual member of a limited liability company that owned subject property for negligence arising from lead paint poisoning, because he controlled the company and no one else was responsible for management of the company or its property. Although the CSA recognized that a trustee of a trust could have personal liability in an appropriate case under trust law and the Baltimore City code for committing a tort, the trustee in this case did not have personal liability, because the evidence showed that its involvement with the property was only a passive one.
Practice Pointer: Lenders that acquire property in Baltimore City must be careful so as not to incur liability for negligence arising from the presence of lead paint in the property. While the CSA’s decision should provide some comfort to a trustee of a trust that merely owns the property, the trustee who is actively managing the property is not immune from personal liability. A state court receiver that manages a lead paint property in Baltimore City should have the same concern about personal liability although the new Maryland Commercial Receivership Act provides some relief. Under Section 24-702 of the act, a receiver may not be sued in its personal capacity unless the receivership court first approves the suit.
Please contact Lawrence D. Coppel for further information concerning this topic.