Arranger Liability Under CERCLA: Leveraging Recent Court Decisions - - PowerPoint PPT Presentation

Arranger Liability Under CERCLA: Leveraging Recent Court Decisions

Reducing Liability Amid Uncertainty and Absent Clear Guidance

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WEDNESDAY, DECEMBER 11, 2013

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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Arranger Liability Under CERCLA: Recent Cases and Developments

Michael K. Murphy Gibson Dunn & Crutcher LLP Suzanne Ilene Schiller Manko, Gold, Katcher & Fox, LLP December 11, 2013

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

7

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

• therwise arranged for disposal or treatment, or

arranged with a transporter for transport for disposal

• r treatment, of hazardous substances owned or

possessed by such person, by any other party or entity, at any facility or incineration vessel owned or

• perated 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

11

“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

Recent Decisions

Suzanne Ilene Schiller

18

Key Issues In Recent Cases

• 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?

• 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?

• 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?

19

Common Subjects

• Transformers
• Carbon Paper Broke
• Wastewater/Sewer Systems
• Dry Cleaning Equipment
• Other Scrap, Wastes and Abandoned Products

20

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., 2013 WL 4875071 (E.D. Mo. Sept. 11, 2013)

21

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. 22

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.

• How Raised: Summary Judgment
• Holding: Defendants were not arrangers
• 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.

23

Wilson Road Development Corp. v. Fronabarger Concreters, Inc., 2013 WL 4875071 (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.

• How Raised: Summary Judgment
• 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 there would be a disposal. Because there was no sale of the transformers (or the oil), the useful product defense was unavailing. As to the transformers MEW sold, there was insufficient evidence that the transformers were valuable and in “good condition” at the time of sale; there was 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.

24

Broke

• Appleton Papers, Inc. v. George A. Whiting Paper Co.,

2012 WL 2704920 (E.D. Wisc. July 3, 2012)

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

2013 WL 5428729 (W.D. Mich. Sept. 26, 2013)

25

Appleton Papers, Inc. v. George A. Whiting Paper Co., 2012 WL 2704920 (E.D. Wisc. July 3, 2012)

• Facts: NCR manufactured PCB-containing emulsion which it sold to 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.

• NCR was also not liable as an arranger because sending the emulsion to ACPC was not disposal,

but rather sale of a useful product.

26

Georgia-Pacific Consumer Prods., LP v. NCR Corp., 2013 WL 5428729 (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 identify 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/potential liability associated with use of the broke, they would not have purchased it; thus it was not a “useful product.”

27

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)

28

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.

• How Raised: Summary Judgment
• Holding: CBC and WTM were arrangers
• Reasoning: CBC and WTM intended to dispose of the wastewater, which had no
• ther purpose. Thus, “knowledge about the specific nature of the matter disposed of

is far less relevant.”

29

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. United States alleged that the run-off was contaminated with hazardous substances and that WSDOT was liable as an arranger for the disposal of those substances.

• How Raised: Summary Judgment
• 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. 30

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 Waterway.

• How Raised: Summary Judgment
• Holding: USACE was not an arranger
• Reasoning: USACE did not exercise “actual control” of the hazardous substances,

and never owned or possessed them. 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.

31

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. The sewer line ran past Gregory Village’s property, which was contaminated with PCE, TCE and petroleum hydrocarbons. Gregory Village alleged 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 of into the sewer system.

32

Dry Cleaning Equipment

• Hinds Investments, L.P. v. Team Enterprises, Inc.,

2010 WL 922416 (E.D. Ca. Mar. 12, 2010)

• Voggenthaler v. Maryland Square, LLC.,

2011 WL 693267 (D. Nev. Feb. 4, 2011)

• Team Enterprises, LLC v. Western Investment Real

Estate Trust, 647 F.3d 901 (9th Cir. 2011)

33

Hinds Investments, L.P . v. Team Enterprises, Inc., 2010 WL 922416 (E.D. Ca. Mar. 12, 2010)

• 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, which contained PCE, from the machines into an open drain.

• How Raised: Motion to Dismiss
• Holding: Defendants were not arrangers
• 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 were not themselves hazardous substances.

34

Voggenthaler v. Maryland Square, LLC., 2011 WL 693267 (D. Nev. Feb. 4, 2011)

• Facts: Hoyt sold dry cleaning equipment. Facts are relatively identical to

Hinds.

• How Raised: Motion to Dismiss
• Holding: Hoyt was not an arranger
• Reasoning: Complaint’s conclusory allegations were insufficient to allege

the necessary intent to dispose and the useful product defense precluded plaintiff’s ability to replead. Court relied heavily on Hinds. 35

Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F .3d 901 (9th Cir. 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, particularly since the machines were designed to recapture used PCE. At best, defendants were “indifferent” to the manner of disposal of PCE-containing wastewater. Instructions, in addition to discussing wastewater, also provided guidance as to how to prevent the PCE from going down the drain. Intent to dispose cannot be inferred from a failure to warn of the risk of contamination. In addition, there was no ownership or possession

• f the PCE nor duty to dispose of the wastewater or PCE.

36

Other Wastes, Scrap and Abandoned Products

• American International Specialty Lines Ins. Co. v. United

States, 2010 WL 2635768 (C.D. Ca. 2010)

• United States v. General Electric Co.,

670 F.2d 377 (1st Cir. 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)

37

American Int’l Specialty Lines Ins. Co. v. United States, 2010 WL 2635768 (C.D. Ca. 2010)

• Facts: Bermite produced, repaired, refurbished and recycled rocket motors for the United

States, in the course of which hazardous substances were used and disposed of. Manufacturing equipment and the motors were at all times, even during manufacture,

• wned by the US, which strictly controlled methods of production, repair and

refurbishment.

• How Raised: Trial
• Holding: United States was an arranger
• Reasoning: United States intended that hazardous substances would be removed from

motors that did not meet specs or were being refurbished and then discarded. Even if the United States did not “own” the substances at the time they were discarded, continuous

• wnership of the hazardous substances is not a requirement for arranger liability. The

United States mandated the use of certain materials and methods, knew the manufacturing process would generate waste and directed aspects of the method of disposal. Further, it had the right to supervise the disposal process.

38

United States v. General Electric Co., 670 F .2d 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

(which was minimal) was subordinate and incidental to disposing of the Pyranol. Among

• ther things, this was evidenced by the fact that other methods of disposal were also used

by GE. 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 then “credit” him for the unusable Pyranol rather than replace it.

39

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

• Facts: Dico sold SIM buildings that were located on Dico’s property. SIM intended to

demolish the buildings to remove steel and possibly other useable materials. SIM moved the steel beams, which were contaminated with PCBs from insulation, to its facility and otherwise disposed of everything else from the buildings.

• How Raised: Summary Judgment
• Holding: Dico was an arranger
• Reasoning: Even though the purpose of the transaction might have been to dispose
• f the buildings, Dico knew that disposal of hazardous substances would result

because Dico was aware that PCB-containing insulation had been used in the

• buildings. Further, there was no market for the buildings themselves and they were

not otherwise useful. Thus, there was an intent to dispose of the PCBs. In reliance

• n pre-BNSF case law, the court also held that where reclamation is the sole useful

purpose and further processing is required before reuse, the useful product doctrine is inapplicable.

40

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

• Facts: ECI manufactured, packaged and warehoused hair care products that Zotos sold for the

retail market. Zotos determined what products in ECI’s inventory were obsolete and should be disposed of. Zotos and/or ECI, as directed by Zotos, also determined whether products returned by distributors should be reconditioned and/or repackaged or 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; in addition, in some respect, Zotos paid for this disposal. With respect to obsolete products, although Zotos characterized its actions as “abandonment,” Zotos intended ECI to dispose of the products and, further, knew how the disposal was being done. That Zotos did not physically dispose of the product or direct where and how it should be disposed of was not a bar to arranger liability.

41

Questions?

Michael K. Murphy

Suzanne Ilene Schiller

Gibson, Dunn & Crutcher LLP MMurphy@gibsondunn.com 202-955-8238 www.gibsondunn.com Manko, Gold, Katcher & Fox, LLP SSchiller@mankogold.com 484-430-2354 www.mankogold.com 42