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Arranger Liability Under CERCLA: Leveraging Recent Court Decisions Reducing Liability Amid Uncertainty and Absent Clear Guidance

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WEDNESDAY, JANUARY 21, 2015

Presenting a live 90-minute webinar with interactive Q&A

Michael K. Murphy, Partner, Gibson Dunn & Crutcher, Washington, D.C.

Suzanne Ilene (Shoshana) Schiller, Partner, Manko Gold Katcher & Fox, Bala Cynwyd, Pa.

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Michael K. Murphy

Gibson Dunn & Crutcher LLP

Suzanne Ilene Schiller

Manko, Gold, Katcher & Fox, LLP

Arranger

Liability

Under

CERCLA

January 21, 2015

Topics

• The text of Section 107 of CERCLA, 42 U.S.C §

9607

• The Supreme Court’s decision in Burlington

Northern & Santa Fe Railway Company v.

United States, 556 U.S. 599 (2009)

• Recent cases applying Burlington Northern

6

Section 107 of CERCLA Michael K. Murphy

Liability for Response Costs Under CERCLA

• CERCLA § 107, 42 U.S.C § 9607, permits

recovery of response costs from potentially

responsible parties (PRPs) for cleanup of

hazardous substances

▫ Four categories of PRPs:

Current owner/operator

Past owner/operator

Arranger

Transporter

8

Defining “Arranger:” Starting with the Text

• 42 U.S.C. § 9607(a)(3):

“[A]ny person who by contract, agreement, or

otherwise arranged for disposal or treatment, or

arranged with a transporter for transport for disposal

or treatment, of hazardous substances owned or

possessed by such person, by any other party or

entity, at any facility or incineration vessel owned or

operated by another party or entity and containing

such hazardous substances . . . .”

9

Taking a Closer Look at Arranger Liability

• Purpose: close a loophole ▫ Prevent entity from avoiding CERCLA liability by

contracting with another party to arrange for the disposal of the entity’s hazardous waste

• “Arranged for” not defined in statute

• Courts previously implemented varying standards of liability: ▫ Specific intent that waste will be disposed of ▫ Mere knowledge that waste will be disposed of

Inferring intent where PRP knew or should have known about hazardous material releases

▫ Strict liability

10

The Decision in Burlington

Northern Michael K. Murphy

“Arranger” Interpreted: Burlington Northern

• Burlington Northern & Santa Fe Railway Company v. United States, 556 U.S. 599 (2009) ▫ Issue: Is intent to dispose of hazardous materials

required for arranger liability or is knowledge sufficient?

• Facts: ▫ Shell Oil Company sold the pesticide D-D to B&B, a

chemical distributor ▫ During transfer from tanker trucks to B&B’s bulk

storage containers, spills of D-D occurred Shell had actual knowledge of some degree of spillage

▫ Shell identified as PRP under arranger liability theory

12

Burlington Northern: Procedural History

• Ninth Circuit, 520 F.3d 918 (2008): ▫ Shell not “traditional” arranger – had not directly

contracted to dispose of hazardous material

▫ Shell still liable under “broader category of arranger liability” because disposal of D-D was foreseeable byproduct of transaction with B&B

• Supreme Court, 556 U.S. 599 (2009): ▫ Reversed Ninth Circuit decision

▫ Shell not liable as arranger because it had no intent to dispose of D-D

13

A Textual Analysis

• The Court began with the language of the statute:

▫ “It is plain from the language of the statute that CERCLA liability would attach under § 9607(a)(3) if an entity were to enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance.”

▫ “It is similarly clear that an entity could not be held liable as an arranger merely for selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination.”

• But what about those cases in between?

14

Crafting a Rule for the Cases In Between

• Giving “arrange” its ordinary meaning:

▫ “In common parlance, the word ‘arrange’ implies action directed to a specific purpose.”

▫ “Consequently, under the plain language of the statute, an entity may qualify as an arranger . . . when it takes intentional steps to dispose of a hazardous substance.”

• And limiting the inference of intent:

▫ “While it is true that in some instances an entity’s knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity’s intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal.”

15

The Court’s Holding: Shell Not an Arranger

▫ “In order to qualify as an arranger, Shell must

have entered into the sale of D-D with the

intention that at least a portion of the product be

disposed of during the transfer process . . . .”

▫ “Shell’s mere knowledge that spills and leaks

continued to occur is insufficient grounds for

concluding that Shell ‘arranged for’ the disposal of

D-D within the meaning of § 9607(a)(3).”

16

The Upshot of Burlington Northern

• Some indicia of intent to dispose of at least a

portion of a hazardous substance is required

▫ Especially for unused, useful products

• Mere knowledge of facts leading to disposal is

insufficient

• Courts left to examine facts of each case to

determine intent of the parties to the transaction

17

Inconsistent Decisions

• Compare American Int’l Specialty Lines Ins. Co.

v. United States, 2010 WL 2635768 (C.D. Ca.

2010) (finding arranger) with Lockheed Martin v.

United States, 2014 WL 1647147 (D.D.C.), 79

ERC 1311 (no arranger liability).

▫ Both cases addressed solid rocket manufacturers

working for the United States and the disposal of

government-owned materials in burn pits under

government contracts in accordance with

government manuals

18

Degree of “Control” under BNSF

• ASLIC: United States knew that hazardous

substances would be removed from motors and

discarded; mandated the use of certain materials;

knew the manufacturing process would generate

waste; and had the right to supervise disposal

• Lockheed Martin: Those facts are not sufficient:

“Instead, arranger liability attaches only if the

government exercised direction and control over

waste disposal activities related to its contracts with

LPC.”

19

Recent Cases Suzanne Ilene Schiller

Key Issues

• Waste vs. Useful Product

▫ Is the product the hazardous substance, or is the hazardous substance merely contained on/within the product?

▫ Is there an established market for the product?

▫ What is the value of the product to the purchaser?

▫ What is the value of the product to the seller?

▫ Has the seller taken steps to minimize potential disposal of the hazardous substance by the buyer?

21

Key Issues (cont.)

• Knowledge and Intent

▫ Is there knowledge of the hazardous nature of product?

▫ Is there an intent to dispose of the product? Is there an intent to dispose of the hazardous substance?

• Ownership and Control

▫ Who owns the product at the time of the disposal of the hazardous substance?

▫ Who controls the method and manner of disposal?

22

Common Subjects

23

Transformers

• Schiavone v. Northeast Utilities Service Co.,

2011 WL 1106228 (D. Conn. Mar. 22, 2011)

• Carolina Light & Power Co. v. Alcan Aluminum Corp.,

921 F. Supp.2d 488 (E.D.N.C. Feb. 1, 2013)

• Wilson Road Development Corp. v. Fronabarger Concreters, Inc.,

971 F. Supp. 2d 896 (E.D. Mo. Sept. 11, 2013)

24

Schiavone v. Northeast Utilities Service Co.,

2011 WL 1106228 (D. Conn. Mar. 22, 2011)

Facts: From 1971 – 1978, Defendants sold used transformers to Kasden for scrap metal. Beginning in 1973, Defendants drained the transformers of PCB-containing oil prior to pick-up by Kasden.

How Raised: Summary Judgment

Holding: Defendants were not arrangers

Reasoning: Defendants intended to dispose of the metal transformers, not the oil inside. This level of intent was not enough to impose arranger liability, even if Defendants knew that oil was in the transformers and would be discarded by Kasden.

25

Carolina Light & Power Co. v. Alcan Aluminum Corp.,

921 F. Supp.2d 488 (E.D.N.C. Feb. 1, 2013)

Facts: Defendants auctioned used transformers which Ward purchased to refurbish and resell. Defendants usually removed oil from the transformers before sale.



Reasoning: Used transformers were sold for high value, and resold at a profit, and therefore were useful. The pre-sale drainage of the transformers was evidence of a lack of intent to dispose of hazardous oils. The defendants’ mere knowledge of potential spills or leaks was not sufficient to impose arranger liability.

26

Wilson Road Development Corp. v. Fronabarger Concreters, Inc.,

971 F. Supp. 2d 896 (E.D. Mo. Sept. 11, 2013)

Facts: From 1954 – 1988, MEW (a) repaired transformers for Defendants and (b) purchased transformers and then sold or discarded them.


Holding: Disputed issues of fact regarding intent precluded summary judgment

Reasoning: As to the repairs, the defendants retained title and knew that oil would be drained during the process and so intended that the oil would be disposed. Because there was no sale of the transformers, the useful product defense would be unavailing. As to the sold transformers, there was insufficient evidence that the transformers were valuable and in good condition at the time of sale and some evidence that they were leaking oil and only valuable as scrap metal, for which credit memos and not cash were paid. The mere fact that some were resold does not establish that they were useful products.

27

Broke

• NCR Corp. v. George A. Whiting Paper, Co., 768 F.3d 682 (7th Cir. Feb. 28, 2014) • Georgia-Pacific Consumer Prods. LP v. NCR Corp., 980 F. Supp. 2d 821(W.D. Mich. Sept. 26, 2013)

28

NCR Corp. v. George A. Whiting Paper, Co.,

768 F.3d 682 (7th Cir. Feb. 28, 2014)

Facts: NCR manufactured PCB-containing emulsion which it sold to Appelton Coated Paper Company (“ACPC”) for use in the production of carbon copy paper. ACPC sold “broke,” a fibrous by-product of the manufacturing process, to recyclers. In the recycling process, the PCBs from the emulsion entered the Fox River. How Raised: Trial Holding: ACPC and NCR were not arrangers Reasoning: ACPC’s knowledge that chemicals from processing broke would be treated as wastewater and end up in the river was insufficient for arranger liability as there was no intent for this to occur; at most, it was indifference. There was also insufficient evidence of an intent to dispose of the emulsion because, while broke was waste to ACPC, it was useful and valuable to the recyclers as there was a well-established market for the broke. Finally, there was no evidence that ACPC knew the broke contained hazardous substances. Finally, NCR was not liable as an arranger because sending the emulsion to ACPC was not disposal, but rather sale of a useful product.

29

Georgia-Pacific Consumer Prods., LP v. NCR Corp.,

980 F. Supp. 2d 821(W.D. Mich. Sept. 26, 2013)

Facts: NCR manufactured PCB-containing emulsion for use in production of carbon copy paper which NCR manufactured. NCR sold the broke to recyclers. In the recycling process, the PCBs from the emulsion contaminated the Kalamazoo River.

How Raised: Trial

Holding: NCR was an arranger

Reasoning: NCR learned by the late 1960s that as part of the normal recycling process, hazardous PCBs were being generated as waste. NCR had internal meetings to seek other methods for disposing of the PCB-contaminated broke or controlling its disposal; when that could not be accomplished, NCR continued to sell it to the recyclers. Further, had recyclers known of the dangers, they would not have purchased it and thus it was not a “useful product.”

30

Wastewater

▫ United States v. NCR Corp.,

2012 WL 5893489 (E.D. Wisc. Nov. 23, 2012)

▫ United States v. Washington State Dept. of Transp.

716 F. Supp.2d 1009 (W.D. Wash. June 7, 2010)

▫ United States v. Washington State Dept. of Transp.

2010 WL 5071277 (W.D. Wash. Dec. 7, 2010)

▫ Gregory Village Partners, LP v. Chevron USA, Inc.,

2012 WL 832879 (N.D. Ca. Mar. 12, 2012)

31

United States v. NCR Corp., 2012 WL 5893489 (E.D. Wisc. Nov. 23, 2012)

Facts: CBC and WTM used recycled broke and discharged the contaminated wastewater into the Fox River.


Holding: CBC and WTM were arrangers

Reasoning: CBC and WTM intended to dispose of the wastewater, which had no other purpose. Thus, “knowledge about the specific nature of the matter disposed of is far less relevant.”

32

United States v. Washington State Dept. of Transp. 716 F. Supp.2d 1009 (W.D. Wash. June 7, 2010)

Facts: WSDOT owned highways from which run-off was directed into the Thea Foss Waterway. US alleged that the run-off was contaminated with hazardous substances and that WSDOT was liable as an arranger for the disposal of those substances.


Holding: WSDOT was an arranger

Reasoning: WSDOT knew that the run-off contained hazardous substances and the drainage system was designed to discharge run-off into the Waterway. Neither creation or ownership of the hazardous substances was a requirement for arranger liability.

33

United States v. Washington State Dept. of Transp. 2010 WL 5071277 (W.D. Wash. Dec. 7, 2010)

Facts: WSDOT alleged that the Army Corps of Engineers’ permitting activities in connection with dredging the Waterway and directing the disposal of the dredged materials caused hazardous substances to enter the Waterday.


Holding: USACE was not an arranger

Reasoning: USACE did not exercise “actual control” of the hazardous substances, which it never owned or possessed. Further, the permit conditions were aimed at protecting human health and the environment and thus negate any inference that USACE intended to arrange for the disposal of hazardous substances into the Waterway.

34

Gregory Village Partners, LP v. Chevron USA, Inc., 2012 WL 832879 (N.D. Ca. Mar. 12, 2012)

Facts: Chevron owned property which housed a gas station and dry cleaner and was serviced by a sewer line owned by the Contra Costa County Sanitary District that ran past Gregory Village’s property, which was contaminated with PCE, TCE and petroleum hydrocarbons. Gregory Village alleges that the contamination arose from, among other sources, leaks in the sewer system.

How Raised: Motion to Dismiss

Holding: District was not an arranger

Reasoning: There was no allegation that the District intended for hazardous substances to be disposed into the sewer system.

35

Dry Cleaning Equipment

▫ Hinds Investments, L.P. v. Angioli,

654 F.3d 846 (9th Cir. August 1, 2011)

▫ Team Enterprises, LLC v. Western Investment Real Estate Trust,

647 F.3d 901 (9th Cir. July 26, 2011)

▫ Heim v. Estate of Heim,

2014 U.S. Dist. LEXIS 46297 (N.D. Cal. April 2, 2014)

▫ Vine Street LLC v. Borg Warner Corp.,

_____ F.3d ____ (5th Cir. January 14, 2015)

36

Hinds Investments, L.P. v. Angioli,

654 F.3d 846 (9th Cir. August 1, 2011)

Facts: Defendants manufactured dry cleaning equipment which Team used at its dry cleaning premises. The equipment utilized PCE and defendants included instructions for the handling and disposal of wastewater from the machines into an open drain.

How Raised: Motion to Dismiss


Reasoning: Ownership, possession and control of the hazardous substance are the most critical factors for determining liability, and defendants had none of that with respect to the PCE and wastewater. Defendants did not install the equipment or connect it to drains. Defendant’s knowledge of the likely disposal was not sufficient under BNSF. Finally, the machines were useful products when sold and, further, were not themselves hazardous substances.

37

Team Enterprises, LLC v. Western Investment Real Estate Trust 647 F.3d 901 (9th Cir. July 26, 2011)

Facts: Appeal of summary judgment granted to other manufacturer defendants in the Hinds case.

How Raised: Appeal after summary judgment

Holding: Affirmed that manufacturers were not arrangers

Reasoning: There was no viable evidence that defendants intended for the equipment to be used for disposal of hazardous substances. At best, defendants were “indifferent” to the manner of disposal of PCE-containing wastewater. Indeed, the fact that the machine recaptured PCE negated such intent. Intent to dispose cannot be inferred from a failure to warn of the risk of contamination. In addition, there was no ownership or possession of the PCE nor duty to dispose of the wastewater or PCE. Instructions, in addition to discussing wastewater, also provided guidance as to how to prevent the PCE from going down the drain.

38

Heim v. Estate of Heim, 2014 U.S. Dist. LEXIS 46297 (N.D. Cal. April 2, 2014)

Facts: Heim used ALMI’s Ajax Vapor Adsorption Unit to collect PCE. Heim tried to distinguish the case from Hinds and Team Enterprises by arguing ALMI directed users, through the Ajax manual, to place contaminated wastewater into the drain without alternative. How Raised: Motion for Summary Judgment Holding: ALMI was not an arranger because it did not have intent to dispose of PCE, nor control over Heim’s operations. Reasoning: Court found that the Ajax manual actually instructed users to connect the machine to a drain or trough, thereby providing alternative disposal methods and leaving the operator of the machine with a level of control over the hazardous substance. Furthermore, the court noted that the Ajax manual instructed users to comply with all state and local laws concerning waste disposal to streams, municipal treatment plans, or the ground. Taking all the evidence together, the ALMI was at most indifferent to the possibility of PCE-laden wastewater being emitted and, therefore, lacked the requisite intent.

39

Vine Street LLC v. Borg Warner Corp., _________ F.3d _________ (5th Cir. Jan. 14, 2015)

Facts: Borg Warner Corp.’s predecessor, Norge, furnished dry cleaning equipment, design assistance and an initial supply of PERC to College Cleaners, which had been located on property owned by Vine Street.

How Raised: Appeal following bench trial

Holding: Trial court held that Norge was an arranger; Circuit Court overturned

Reasoning: The evidence established that both Norge and College Cleaners treated the PERC as a valuable commodity and any discharge, even through the sewer, was unintentional. Court was “unmoved” by the fact that Norge actually installed the equipment and connected it to the sewer line given the facts that negated intent.

40

Other Wastes, Scrap and Abandoned

Products

• United States v. General Electric Co.,

670 F.3d 377 (1st Cir. Feb. 29, 2012)

• United States v. Dico, Inc.,

892 F. Supp.2d 1138 (S.D. Iowa Sept. 24, 2012)

• W.D. Grace & Co. – Conn v. Zotos Int’l, Inc.,

2013 WL 5488939 (W.D.N.Y. Sept. 30, 2013)

• United States v. Federal Resources Corp.,

2014 U.S. Dist. LEXIS 97511 (D. Id. July 14, 2014)

41

United States v. General Electric Co., 670 F.3d 377 (1st Cir. 2012)

Facts: GE manufactured electrical equipment containing Pyranol, an insulator which it manufactured from PCBs. When the manufactured Pyranol was below spec, it was considered scrap and placed into drums. From 1953 – 1967, the drums were first given, then sold to a chemical scrapper, Fletcher, who used the off-spec Pyranol as a paint additive. How Raised: Appeal after Trial Holding: GE was arranger Reasoning: GE considered the product to be a waste, and any income from the sale was subordinate and incidental to disposing of the Pyranol. Among other things, this was evidenced by the fact that other methods of disposal were used (such as sending to a landfill). In addition, except for Fletcher, there was no market for the product. There was no quality control of the Pyranol sent to Fletcher, who complained that much of it could not be used, and there was evidence that in the final year, GE was merely dumping off-spec Pyranol on Fletcher and would “credit” him for the unusable Pyranol rather than replace it.

42

United States v. Dico, Inc., 892 F. Supp.2d 1138 (S.D. Iowa Sept. 24, 2012)

Facts: Dico sold to SIM certain buildings which SIM intended to demolish and remove steel and possibly other useable materials. SIM moved the steel beams, which were contaminated with PCBs, to its facility and disposed of everything else from the buildings.


Holding: Dico was an arranger

Reasoning: Dico was aware of past PCB contamination of the buildings, which has been at least partially remediated. Purpose of the transaction was to dispose of the buildings, and Dico knew that disposal of PCB insulation would result. There was no market for the buildings and they were not otherwise useful. From this, court found that intent was to dispose of PCBs. In reliance on pre-BNSF case, Also held that where reclamation is the sole useful purpose and further processing is required before reuse, the useful product doctrine is inapplicable.

43

W.D. Grace & Co. – Conn v. Zotos Int’l, Inc., 2013 WL 5488939 (W.D.N.Y. Sept. 30, 2013)

Facts: ECI manufactured and packaged hair care products that Zotos sold for the retail market. ECI also warehoused these products for Zotos. Under the relevant agreements, Zotos and/or ECI determined whether returns from distributors should be reconditioned/repackaged or be destroyed as unusable. ECI determined how and where to dispose of unsalvageable products. How Raised: Trial Holding: Zotos was an arranger Reasoning: Zotos had title and ownership of products returned to ECI by distributors and controlled the decision as to whether to salvage or dispose of them. Zotos also determined what products in ECI’s inventory were obsolete and should be disposed. Although Zotos characterized its actions as abandonment of products, Zotos intended that ECI would dispose of these products and knew how the disposal was being carried out. With regard to returns, Zotos paid for disposal services. That Zotos did not physically dispose of the product or direct where and how it should be disposed was not a bar to arranger liability.

44

United States v. Federal Resources Corp.,

2014 U.S. Dist. LEXIS 97511 (D. Id. July 14, 2014)

Facts: FRC engaged in mining work at the Conjecture Mine site. F&M also engaged in mining at the Conjecture site under a Federal mining contract, which gave the U.S. the right of entry and inspection and provided that the U.S. could consult with and advise F&M on all phases of the work. At one point, the U.S. advised F&M to change its digging direction, a direction F&M declined to follow. F&M constructed a flotation mill at the Conjecture site (possibly upon instruction from the Government), which produced waste tailings that were dumped in on-site ponds. The U.S. was aware of the waste tailings. FRC brought a counter claim against the U.S. alleging that the Government was partially responsible for cleanup costs as an arranger.

How Raised: Motion for Summary Judgment on Defendant’s Counterclaim

Holding: The United States was not an arranger.

Reasoning: The court found that the U.S. did not take intentional steps to dispose of hazardous waste tailings from the mining efforts for the following reasons: (1) the U.S. did not have actual control over mining operations and the fact that the U.S. suggested that F&M change its drilling direction was not proof otherwise; (2) the mere fact that the Government possibly encouraged the construction of the flotation mill is not evidence that the Government intended hazardous substances to be dumped on the site; and (3) mere knowledge that hazardous mill tailings were being discarded at the site was not enough to show that the U.S. was an arranger.

45

Questions?

Michael K. Murphy Suzanne Ilene Schiller

Gibson, Dunn & Crutcher LLP

[email protected]

202-955-8238

www.gibsondunn.com

Manko, Gold, Katcher & Fox, LLP

[email protected]

484-430-2354

www.mankogold.com

46

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