Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 USC 9601, in 1980 to address releases or threatened releases of hazardous substances. The statute provides strict liability against certain classes of potentially responsible parties (PRPs) but was silent on how such liability should be allocated among parties. Because of this lack of statutory guidance, CERCLA has been heavily litigated, including several cases before the U.S. Supreme Court.
Five years ago, the Supreme Court again addressed CERCLA in Burlington Northern v. United States, 556 US 599 (2009). In that case, the Court attempted to clarify two issues: (1) under what circumstances does a party that divests itself of a hazardous substance become liable under CERCLA as an arranger under Section 107(a)(3), and (2) whether that liability can be apportioned on a reasonable basis to avoid potential joint and several liability. The Burlington Northern opinion directed lower courts to undertake a factually laden inquiry as to both issues, which has resulted in the inconsistent treatment of PRPs across the country.
The first issue addressed by Burlington Northern is the basis for determining arranger liability under Section 107(a)(3). In Burlington Northern, the Supreme Court addressed what it meant to “arrange” for the disposal of hazardous substances.
CERCLA [arranger] liability would attach under [Section] 9607(a)(3) if an entity were to enter into a transaction for the sole purpose of discarding a used and no longer useful 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.
Id. at 1878–1879.
Outside of these clear-cut examples, the Court acknowledged a vast middle ground where arranger liability is less clear. In such cases, the Court opined that the intent of the entity should be considered (i.e., whether the entity intended for the disposal of its product or, in the alternative, whether the entity intended for the product’s reuse). The Court cautioned, “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, [however] knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal.” Id. at 1880.
At first glance, the Court’s ruling in Burlington Northern seems to heighten the burden for establishing arranger liability. In a 2013 case, the District of New Jersey held that even if a PRP knew about the disposal of a hazardous substance that it formerly controlled, that PRP would not be liable unless it intended for disposal to take place. See United States v. D.S.C. of Newark Enters., 2013 WL 2658929, 09-2270 (D.N.J. June 12, 2013) (finding that the record revealed no facts indicative of intent to arrange for the disposal of hazardous substances). In practice, however, post-Burlington Northern PRPs are subject to very inconsistent results.
There are certainly cases to support the proposition that Burlington Northern made arranger liability more difficult to attach. For instance, in U.S. Virgin Islands v. Vulcan Materials, 2010 WL 2654631, 2006 cv 170 (D.V.I. July 1, 2010), a PRP was successful in its motion to dismiss when the district court for the Virgin Islands held that plaintiffs failed to adequately plead arranger liability even though the complaint alleged a failure to prevent disposal and knowledge that a product would result in a release. In Vulcan Materials, plaintiffs did not plead the requisite intent, and so the Court dismissed the Section 107(a)(3) claim.
Likewise, the Fifth Circuit rejected arranger liability where a PRP consciously disregarded its duty to investigate the aftermath of an onsite accident. Plaintiffs alleged that this failure should be tantamount to intentionally taking steps to dispose of hazardous substances, thus supporting arranger liability; the Fifth Circuit, however, rejected this allegation, holding that the failure to investigate did not constitute intent to dispose. Celanese Corp. v. Martin K. Eby Const., 620 F.3d 529 (5th Cir. Sept. 20, 2010) (foreclosing on arranger liability where a contractor failed to investigate the consequences of a backhoe accident in which the backhoe struck something in the ground that was later found to be a methanol pipeline).
Vulcan Materials and Celanese Corp. are fairly straightforward cases where the respective courts only sought to determine whether the PRPs intended such disposal. More difficult are cases where PRPs rid themselves of hazardous substances with a mixed motive, selling a product for the dual purpose of discarding the material and profiting from the sale.
For instance, in Appleton Papers v. George A. Whiting Paper, 2012 WL 2704920, No. 08-c-16 (E.D. Wisc., July 3, 2012), the PRP sold a paper by-product that was no longer of use to the PRP. The buyer of that byproduct used the material and thereafter discharged part of the product into the Fox River. The Appleton Papers Court held that the knowledge that some of a PRP’s sold by-product would be discharged in a river was not sufficient to constitute arranger liability. The discharge to the river was an afterthought and not the purpose of the original sale of the material.
In mixed motive cases, courts continue the pre-Burlington Northern practice of evaluating the usefulness of a product to determine the primary purpose of the transaction. For instance, in American Premier Underwriters v. General Electric Co., 2012 WL 1104805, No. 1:05 cv 437 (S.D. Ohio Sept. 30, 2012), the PRP sold railcars and transformers that contained PCBs. The Southern District of Ohio held that these were useful products and their sale did not support arranger liability. The disposal of PCBs from these products occurred as a “peripheral result of the legitimate sale of an unused, useful product.” Id. at 4–5 (quoting Burlington Northern). See also Pakootas v. Teck Cominco Metals, 832 F. Supp. 2d 1268, 1273 (E.D. Wash. Nov. 29, 2011) (“A company selling a product that uses and/or generates a hazardous substance as part of its operation may not be held liable as an arranger under CERCLA unless the plaintiff proves the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.”); Schiavone v. Ne. Util. Co., 2011 WL 1106228, 3:08 cv 429 (D. Conn. Mar. 22, 2011) (holding scrap transformers to be a useful product for which no arranger liability attached).
In determining the usefulness of a product, courts look at the following factors: knowledge of disposal, value of the material sold, usefulness of the materials in the condition in which they were sold, and the state of the product at the time of transfer. Carolina Power & Light v. Alcan Aluminum Corp., 921 F. Supp. 2d 488, 496 (E.D.N.C. 2013) (finding that, based on these factors, the PRP was not an arranger). See also United States v. Wilmer, 2013 WL 856513, 11-cv-02244 (D. Colo. Mar. 7, 2013) (finding a genuine issue of material fact as to whether a PRP sold hazardous substance for reuse or with the intent of disposing of a waste).
A plaintiff can overcome the useful products defense by showing that the substance involved in the transaction has the characteristic of waste at the time it was delivered to another party. Team Enter. v. W. Inv. Real Estate Trust, 647 F.3d 901, 909 (9th Cir. 2011) (holding that the PRP was not an arranger because it had designed a machine to salvage PCE that would otherwise be discarded; while users may dispose of wastewater containing PCE from the machine, there was no evidence indicating that the product was designed to be a waste disposal machine). By examining the product when it was delivered, a court may better glean the true intent of the transaction. Id.
While the aforementioned cases represent ways in which a PRP may avoid arranger liability by demonstrating a lack of intent, not all post-Burlington Northern arranger cases have released PRPs from liability. Two recent cases should give pause to any party entering into transactions involving hazardous substances.
The First Circuit recently undertook an inquiry to determine whether a PRP intended to dispose of hazardous substances. In United States v. General Electric Co., 670 F.3d 377 (1st Cir. 2012), the PRP loaded scrap insulating material that contained PCBs onto trucks and failed to make an effort after learning about the contaminated nature of the material to retrieve, clean up, or otherwise properly dispose of the material. In evaluating these facts, the General Electric Court provided, “divining the element of intent necessary to implicate arranger liability remains a ‘fact-intensive inquiry’ which, guided by Congress’s intent in enacting CERCLA’s strict-liability regime, ‘looks beyond the parties’ characterization of the transaction as a ‘disposal’ or a ‘sale.’” Id. at 14.
As such, the First Circuit looked beyond the usefulness of the product and determined that the PRP “viewed [the material] as waste material and that any profit it derived from selling scrap . . . was subordinate and incidental to the immediate benefit of being rid of an overstock of unusable chemicals.” Id. at 15. The General Electric Court supported its finding by pointing to a “[l]ack of viable market for [the scrap material] during the relevant period supplies further proof that [the defendant] did not view [the scrap material] as a legitimate and serviceable product.” Id. at 18.
In determining intent, the General Electric Court attempted to establish the PRP’s state of mind, and decided that the PRP’s documented actions and calculated inactions evince sufficient intent to dispose of a hazardous substance. According to the First Circuit, mere knowledge of future disposal will not trigger arranger liability, but a well-documented history of purposeful inaction can demonstrate sufficient intent to render a defendant liable for arranging for the disposal of hazardous substances, even if the defendant sold the material to be used by another entity before its disposal.
While the First Circuit’s efforts to “divine” arranger liability represent a departure from the common practice of finding a lack of intent where a product is useful, a case out of the Southern District of Iowa is even more disquieting. In United States v. Dico, 892 F. Supp. 2d 1138 (S.D. Iowa Sept. 24, 2012), the Southern District of Iowa opined that for the PRP to be held liable as an arranger, it must have entered into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance. Factually, the PRP sold a building with PCB-laden beams to a scrapper. Although the scrapper salvaged the beams, the Dico Court held that no reasonable fact-finder could conclude that the buildings at issue were commercially useful. As such, the Dico Court held that the PRP intended to dispose of the building and beams and is liable as an arranger—a finding that could have significant repercussions for the sale of buildings that contain hazardous substances.
The majority of post-Burlington Northern arranger cases have not found PRPs possessed the intent to dispose. However, the outlier cases discussed above reiterate the unpredictability of CERCLA liability.
Apportionment of Harm under CERCLA
In addition to addressing arranger liability, in Burlington Northern, the Supreme Court also addressed apportionment of harm, which allows a PRP to avoid joint and several liability. The Burlington Northern Court held that a PRP can avoid joint and several liability if there is a reasonable basis for apportionment. Because CERCLA provides strict liability, apportionment is a powerful tool for PRPs. Apportionment has been generally described as follows:
When two or more persons acting independently cause a distinct or single harm for which there is a reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of the total harm that he has himself caused…. But where two or more persons cause a single and indivisible harm, each is subject to liability for the entire harm. . . . [A]pportionment is proper when there is a reasonable basis for determining the contribution of each cause to a single harm.
In re Methyl Tertiary Butyl Prods. Liab. Litig., 643 F. Supp. 2d 461 (S.D.N.Y. 2009).
In CERCLA cases, the burden to demonstrate a reasonable basis for apportionment is on the defendant because: (1) the burden should be placed on culpable rather than innocent parties, and (2) defendants are often in a better position to know their relative contribution to the harm than are plaintiffs. Id.
Lower courts have varied interpretations of the Supreme Court’s holding regarding apportionment. In Appleton Papers v. George A. Whiting Paper, 2009 WL 5064049, No. 08-c-16 at 1 (E.D. Wis. Nov. 18, 2009), for example, the Eastern District of Wisconsin opined, “Burlington Northern is indeed a watershed apportionment case—it significantly eases the burden on defendants who seek to avoid joint and several liability by allowing courts more leeway in determining whether the damage in question is capable of being apportioned and then, in divvying up the damage.” In contrast, United States v. Iron Mountain Mines, 2010 WL 2793538, 91-0769 (E.D. Cal. May 6, 2010), held that the Burlington Northern apportionment holding was not a departure from prior case law or a new mandate that a district court must apportion harm; rather the Supreme Court was simply demonstrating an evaluation of facts for purposes of apportionment.
In theory, Burlington Northern should facilitate apportionment, and it has in some cases. In 2014, the Second Circuit recently upheld an opinion by the Western District of New York allocating past and future remediation costs under CERCLA based on underlying hydrogeology, groundwater chemistry, and migratory pathways in an area of concern. New York v. Solvent Chemical, 2014 WL 259648, Nos. 13-132 (L), 13-148 (2d Cir. Jan. 24, 2014). In Solvent Chemical, the Second Circuit upheld the Western District of New York’s allocation of future costs, finding that it acted within the bounds of its discretion by averaging site-specific pumping well data to bridge the wide variation between experts’ allocation estimates.
Generally in practice, Burlington Northern has not made apportionment any easier for PRPs to achieve. Although in Burlington Northern, the Supreme Court used a 50 percent margin of error in calculating apportionment, courts routinely find facts necessary for reasonable apportionment to be absent from the record, often rejecting multiple methods of apportionment put forth by PRPs. In 3000 E. Imperial v. Robertshaw Controls, 2010 WL 5464296, 08 cv 3985 (C.D. Cal. Dec. 29, 2010), for example, the Central District of California rejected duration and area of ownership as an insufficient basis for apportionment, because hazardous substances could have been released at different rates and in different areas. Similarly, in Pentair Thermal Management v. Rowe Industries, 2013 WL 1320422, 06-cv-07164 (N.D. Cal. Mar. 31, 2013), the Northern District of California held that apportionment was not appropriate where a single hazardous substance was remediated and that dividing the site by square footage could not reasonably approximate the harm caused by each PRP.
The District Court of South Carolina, in an opinion upheld by the Fourth Circuit, evaluated five different theories of apportionment proposed by a PRP. Each theory was rejected due to the complexity and progression of the environmental harm. Ashley II of Charleston v. PCS Nitrogen, 791 F. Supp. 2d 431 (D.S.C. 2011) upheld by PCS Nitrogen v. Ashley II of Charleston, 714 F.3d 161 (4th Cir. 2013). The case involved a large, multi-owner property that had been impacted by nearly a century of fertilizer production in separate production plants, followed by potential leaks from later unrelated operations in separate portions of the property.
In Ashley II, the PRP, a former landowner, first proposed apportionment based on the amount of fill or material added to the site in question during each party’s period of ownership. The district court held that this method failed to show a reasonable relationship between the addition of material to the site and the spread of contamination on the site.
Second, the PRP proposed apportioning harm based on the volume of contaminants introduced to the site. The court found this method failed to take into account the spread of contamination and the inaccuracy of volumetric calculations.
Third, the PRP suggested apportioning harm based on the period of time that each entity operated the site. The district court held that this third method failed to incorporate data on the approximate production levels during each entity’s operation of the site.
Fourth, the PRP proposed that the district court apportion harm based on an analysis of which party first physically disturbed the different portions of the remediated area. Again the district court found this was insufficient due to the fact that it failed to take into account the original sources of the contamination and the fact that an analysis of earth-moving activities could not show the amount of contaminants moved or the effect of more invasive earthmoving activities.
Finally, the PRP proposed apportionment based on soil samples of areas potentially impacted. The district court found that the sampling in the record was not reasonably related to the volume of contaminated soil on the site.
It is notable that despite rejecting apportionment among the PRPs, the district court established, and the Fourth Circuit upheld, joint and several liability for all parties in Ashley II. As such, the liability would still be subject to allocation among the parties. However, there is a very real difference between apportionment and allocation of joint and several liability. If a court chooses to allocate harm, each PRP remains jointly and severally liable, and if others cannot pay their shares, PRPs with greater means presumably will end up paying more than their fair share. If, however, a court apportions harm on a reasonable basis, joint and several liability would not apply, and no PRP could be forced to pay more than its apportioned share.
Defendants appealed the ruling by the District of South Carolina and the Fourth Circuit upheld. PCS Nitrogen Inc. v. Ashley II of Charleston, 714 F.3d 161 (4th Cir. Apr. 4, 2013). The Fourth Circuit provided, “An arbitrary apportionment is just what the district court refused to make, as any apportionment without adequate evidence as to the harm caused by secondary disposals necessarily would have been arbitrary.” Id. at 183. In accepting the district court’s refusal to allocate harm, the Fourth Circuit acknowledged the complexity of environmental harm and approved the lower court’s failure to dissect multiple means of contamination even with a Supreme Court-approved margin of error.
Perhaps more concerning is the opinion of the Seventh Circuit in United States v. NCR Corp., 688 F.3d 833 (7th Cir. 2012). In a long running effort to clean up the Fox River in Wisconsin, Wisconsin and the U.S. EPA sued NCR, a PRP, to compel the completion of scheduled remedial work. In response, NCR argued that the cleanup costs were capable of apportionment and that it had already performed more than its share of the work. In evaluating NCR’s argument, the Seventh Circuit acknowledged that even when there is a basis for allocation, such a division of harm is not appropriate where the harm would have occurred without the contribution of other actors. “Apportionment is improper where either cause would have been sufficient in itself to bring about the result, as in the case of merging fires which burn a building.” Id. at 839.
In NCR Corp., NCR contributed less than 10 percent of the contamination, but because even a 10 percent contribution would have exceeded the remediation threshold as established by EPA of 1.0 ppm of PCB, the river still would have needed to be dredged. Accordingly, the Seventh Circuit found that the harm would have occurred even if other parties had not contributed to the contamination. If other Courts followed the Seventh Circuit’s lead, it would effectively disallow apportionment in environmental cases where the mere presence of a hazardous substance exceeds a remediation threshold.
Upon remand, the Eastern District of Wisconsin further rejected divisibility and apportionment, holding that PRPs are jointly and severally liable for the harm resulting from PCB contamination in the Lower Fox River. United States v. NCR Corp., 960 F. Supp. 2d 793 (E.D. Wis. May 1, 2013). Building upon the holding of the Seventh Circuit, the Eastern District found the causal relationship between amount of PCBs discharged and the contamination of the River to be tenuous. Once an area was contaminated, the further discharge of PCBs did not make area more contaminated. The Court also took issue with PRPs’ expert calculations and found the movement of sediment at the bottom of the river to be influenced by too many factors to pinpoint the source of contaminants found in the sediment.
Through Burlington Northern, the Supreme Court attempted to clarify CERCLA, giving PRPs a new argument to avoid arranger liability and a reasonable basis standard to avoid joint and several liability. Lower courts, however, have struggled to implement the Supreme Court’s opinion in many cases.
While PRPs in post-Burlington Northern cases are often found to lack the requisite intent to be held liable as arrangers, recent cases represent a willingness to find the intent to dispose through creative means as found in Dico. Further, the unwillingness of lower courts to find a reasonable basis for apportionment reiterates the statute’s harsh nature. Despite the Supreme Court’s attempts to clarify liability, CERCLA remains unpredictable and often results in harsh treatment of PRPs.