ALABAMA | FLORIDA | GEORGIA | MISSISSIPPI | WASHINGTON DC Arranger Liability Under CERCLA Air & Waste Management Association Southern Section Annual Meeting.

ALABAMA | FLORIDA | GEORGIA | MISSISSIPPI | WASHINGTON DC

Arranger Liability Under CERCLA

Air & Waste Management AssociationSouthern SectionAnnual Meeting & Technical ConferenceCallaway GardensAugust 20, 2015

Steven Burns

Question: •Why does this matter?

Answer:•$ $ $

Presentation outline

•Arranger liability basics

•Ward Transformer recap

•Roundup of other recent cases

•Takeaways and guiding principles3

What is an “arranger”?

Arranger liability basicsScenario:

• Contamination at a site

• Associated with products or materials brought from elsewhere

•What is the liability of the party who sold or shipped that material?

Arranger liability basics

“Arranger”:

•One of several categories of liable parties under CERCLA, the federal contamination statute.

(Comprehensive Environmental Response, Compensation and Liability Act of 1980)

Liable parties under CERCLA: 1. Current owner / operator2. Past owner / operator3. “Any person who by contract,

agreement or otherwise arranged for disposal or treatment . . .”

4. TransporterPer CERCLA § 107(a), 42 U.S.C. § 9607(a)

When a used part, component, material, etc., is sold or otherwise shipped away, but not to a landfill:

• Is that a sale of a useful product?or,

•Did the seller actually arrange for a “sham” disposal?

If the transaction is deemed to be an arrangement for disposal:• Seller is liable for response costs in a

similar manner as other liable parties.

If the transaction is deemed to be a sale of a useful product:• Seller has no liability under CERCLA.

Ward Transformer recap

•Consolidation Coal Co. v. Georgia Power Company, 781 F.3d 129 (4th Cir. 2015)

•Spoiler alert:Georgia Power won!

Scenario:

•Utilities sold used transformers to Ward Transformers in Raleigh, NC

•Massive contamination at the site (PCBs)

• Court reviewed several sale transactions from 1980 to 1984

Relevant facts:

•Age of transformers ranged from 3 to 23 years old

•Most < 15 years old

Relevant facts:

•Georgia Power had a two-track process

• Sales group handled valuable transformers

• Disposal group handled items not for resale

Relevant facts:

• Sales via competitive bidding process

•Ward inspected and rejected some

•Ward resold the transformers at a profit15

Additional background information available from my presentation at last year’s conference

http://www.ss-awma.org/annual.php

Outcome:

• Sale of a useful product

•No arranger liability for Georgia Power

Court’s reasoning:

•Applied 4 factors (Pneumo Abex):

1. Intent of the parties as to reuse of the material2. Value of material sold3. Usefulness of materials at the time of sale4. Condition of the product

1. Intent: • No evidence GPC intended to dispose of PCB oil• GPC intended to recover revenue• Efforts to test for PCBs indicated intent to comply

with law (TSCA), not dispose of PCBs

1. Intent: • PCBs were incidental component of a legitimate

sale• Ward, not GPC, made decisions as to dispose or

reuse PCB oil

2: Value of material sold• GPC recovered revenue from the sales• Ward recovered greater revenue from resale

3. Usefulness of the product: • Most transformers used again after resale• Not at the end of their useful lives

4. Condition of the product: • No evidence of transformers leaking at the time

of sale

Knowledge: • No evidence that GPC knew that Ward was

disposing in a manner to cause contamination

Roundup of other recent cases

Case: •Burlington Northern & Santa Fe Railway

Co. v. United States, 129 S. Ct. 1870 (Supreme Court 2009)

Product at issue: •Pesticides (new product)

Relevant facts:• Site was an agricultural chemical

distribution business•Operated in part on railroad property• Shell sold pesticides in drums and

containers• Leakage over the years• Shell gave advice as to best practices

Roundup of other recent casesOutcome: •No arranger liability for Shell

Court’s reasoning:• Fact-specific inquiry• Sale of useful product not an arrangement

for disposal• Knowledge of leaks not enough to establish

liability28

Roundup of other recent casesNote on relative authority of these cases:•Outcome of any case depends on specific

facts and circumstances•Circuit Courts > District Courts•Circuit Court cases are binding on the

District Courts in that circuit• AL & GA – Eleventh Circuit• TN – Sixth Circuit•MS – Fifth Circuit

Case: •American Premier Underwriters, Inc. v.

General Electric Co., 2015 WL 1469095 (S.D. Ohio 2015)

Product at issue:•Rail car transformers

Relevant facts:•Penn Central used GE transformers on

passenger rail cars• Transformers leaked (“burped”) PCB oil• Pressure relief valves, working more or less as

intended• Leaks around welds and bushings

Outcome:•No arranger liability for GE

Court’s reasoning:• Intent of valves was to relieve pressure

to prevent rupture (not disposal)• Leaks an “undesirable consequence” but not a

specific purpose

Court’s reasoning (continued):• Emphasis on “knowledge not intent”

from Burlington case•After the sales transactions, GE did not

own the transformers•GE knew of environmental issues with

PCBs, but the PCB oil was a useful product at time of transformer sales

Case: •City of Merced Redevelopment Agency

v. Exxon Mobil Corp., 2015 WL 471672 (E.D. Cal. 2015)

Product at issue:•Gasoline containing methyl tertiary

butyl ether (MBTE)

Relevant facts:•Agency came to acquire two service

stations with MBTE contamination•Defendants supplied gasoline with

MBTE•Plaintiffs alleged that suppliers provided

inadequate warnings and instructions as to proper handling of gasoline

Outcome:•No arranger liability for gasoline suppliers

Court’s reasoning:• Sale of gasoline not intent to dispose•No other evidence of intent to dispose•Knowledge of leaks does not establish

arranger liability (Burlington)

Case: •Vine Street LLC v. Borg Warner Corp.,

776 F.3d 312 (5th Cir. 2015)

Product at issue:•Dry cleaning equipment

(perchloroethylene (PERC))

Relevant facts:•Borg Warner subsidiary provided dry

cleaning equipment, design assistance, and PERC the dry cleaner•Water separators supposed to allow

recycling of PERC• Actively attempted to recycle (expensive)

•PERC contamination nevertheless resulted

Outcome:•No arranger liability for Borg Warner

Court’s reasoning:•Neither party intended to dispose PERC • Intent was to recapture

•Knowledge of leaks does not establish arranger liability (Burlington)

Case: •NCR Corp. v. George A. Whiting Paper

Co., 768 F.3d 682 (7th Cir. 2014)

Product at issue:•Carbonless paper (with PCBs) and paper

scraps (with PCBs) sold to recycling mills

Relevant facts:•NCR made “carbonless” paper with PCBs•Recycling mills made paper from

primary mill byproducts•NCR sold carbonless paper scraps to

mills, which made paper•Mills extracted and dumped PCBs into

the Lower Fox River (WI)

Outcome:

•No arranger liability for NCR

• Note: This was a complex case. NCR was involved in the response, and NCR had liability for other reasons.

Court’s reasoning:•District court made a factual finding that

intent of NCR was to “place it on a competitive market and recoup some of its costs of production”• Deferred to trial court’s fact-finding

•Knowledge of leaks does not establish arranger liability (Burlington)

Case: •W.R. Grace & Co. v. Zotos International,

Inc., 2013 WL 5488939 (W.D. N.Y. 2013)

Product at issue:•Hair care products

Relevant facts:

• Zotos sold hair care products

• ECI manufactured the products and managed distribution (Waterloo plant)• Grace later acquired ECI assets• Grace = ECI for purposes of this case

Relevant facts:

• Zotos customers returned some products that met quality specifications• Zotos decided whether product could be

reconditioned (by ECI) or disposed of•Other products sold slow & became

obsolete• ECI sought Zotos approval to dispose

Relevant facts:

• In all cases, disposals occurred at Brewer Road property

Outcome:• Zotos arranged for disposal for purposes

of CERCLA

Court’s reasoning:•Court rejected Zotos claims:• Zotos merely abandoned inventory• ECI made all arrangements as to disposals

Court’s reasoning:•Rather, according to the court:• True that Zotos sold useful products• But here, the products were unsold, unwanted, or

obsolete• Zotos made key decisions of which

products to sell & which to throw away• This was more than knowledge of leaks as

discussed in Burlington Northern:• “intentional steps to dispose of a hazardous substance”

Case: •Wilson Road Development Corp. v.

Fronabarger Concreters, Inc., 971 F. Supp. 2d 896 (E.D. Mo. 2013)

Product at issue:•Utility transformers

Relevant facts:

•Plaintiffs owned property downgradient from Missouri Electric Works (MEW)

•Defendant utilities sold transformers to MEW

Relevant facts:

•Many were sold and subsequently resold• Some sent for repair, but utilities still

owned them• Some sent in poor condition• “Junkers” for a “nominal” price

Roundup of other recent casesOutcome:•Motion for summary judgment denied

Court’s reasoning:•Defendants’ intent – “whether to dispose

of hazardous waste or to engage in legitimate sale and repair of used transformers” – was “a disputed issue of fact”

Case: •United States v. Dico, Inc., 892 F. Supp.

2d 1138 (S.D. Iowa 2012)

Product at issue:•Metal building with insulation that had

Relevant facts:•Dico sold SIM various metal buildings• Disputed factual history indicates Dico may have

had reason to believe there could be PCB issues• SIM mainly wanted the steel beams• SIM extracted the steel beams and left

them in a lay-down area• Steel beams had been in contact with

PCBs; PCBs entered the ground55

Outcome:•Dico arranged for disposal of the PCBs

Court’s reasoning:• Fact-specific inquiry indicates intent to

dispose

Court’s reasoning:•No real market for the metal buildings•Not in great shape•Could not be moved without demolition•Only the steel beams were valuable• Everything else, including the PCB-laden

insulation, had to be disposed of• Facts disputed, but Dico knew there was

a good probability of PCBs57

Case: •United States v. General Electric Co., 670

F.3d 377 (1st Cir. 2012)

Product at issue:• Scrap insulating material

Relevant facts:•GE manufactured electric capacitators at

two plants in New York•Required use of PCBs (Pyranol)•GE developed a “glut” of Pyranol and

accumulated drums of “scrap” Pyranol• Sold scrap Pyranol to Fletcher• Local businessman who added it to paint

Relevant facts:•Arrangement worked for 10+ years

beginning in 1953•Over time, Fletcher began missing

payments•GE continued to send shipments • Some dispute as to quality•No more shipments after 1967

Relevant facts:•Problems at the Fletcher site discovered

in 1987

Outcome:•GE arranged for disposal

Court’s reasoning:•GE considered Pyranol to be a waste

product• Typically labeled “scrap,” “waste,” etc.• Got rid of it various ways, including dust

suppressant and dumping into Hudson River• Much of the scrap Pyranol was poor quality• No effort to sell it as a useful product to anyone

other than Fletcher

Court’s reasoning:•GE controlled quality and volume of

material sent •After learning Fletcher could not use all

the quantities sent, GE tested some of the material• Found it was poor quality and forgave debt• But made no effort to retrieve off-spec material

Other transformer cases finding no arranger liability for the utility:

•Carolina Power & Light Co. v. Alcan Aluminum Corp., 921 F. Supp. 2d 488 (E.D. N.C. 2013)

• Schiavone v. Northeast Utilities Service Co., 2011 WL 1106228 (D. Conn. 2011)

Takeaways

•When selling surplus items, intent of the seller matters• Intent to dispose or sale of useful

product?

•Sale (and resale) price

Takeaways

•Disposal costs and practices

• Separate internal process from sales?• Separate, specialized vendors?•Who makes the decision of what

material to dispose of?

Takeaways

•Current and potential utility of product• Competitive market for the item?• Potentially subject to resale?

•Condition of the product• Risk of spill or release• Condition as affecting usefulness

Takeaways

•Due diligence to avoid counterparties with bad practices•No releases = no CERCLA liability

•But if diligence uncovers concerns, be prepared to take action in response

Takeaways

•Use only high quality vendors – top tier of those reviewed

•More vendors of lower quality = more opportunities for releases

Takeaways

•Where the intent truly is for a sale, limit contractual obligations as to buyer’s disposal practices

• Sharing best practices is fine, but…

•Don’t create a contract that looks like the seller dictates manner of disposal

Thank you!Steven Burns

(205) 226-8736sburns@balch.com

ALABAMA | FLORIDA | GEORGIA | MISSISSIPPI | WASHINGTON DC Arranger Liability Under CERCLA Air & Waste Management Association Southern Section Annual Meeting.

georgia power won

georgia power company

liability act

used transformers

age of transformers

years old

sham disposal

transporterper cercla

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