Reports of the Demise of CERCLA “Arranger” Liability Proving to Be Premature

In Burlington Northern & Santa Fe Railway Co. v. United States, 129 S.Ct. 1870 (2009), the United States Supreme Court held that to establish that a defendant is a CERCLA “arranger” or generator under § 9607(a)(3), a plaintiff must  establish that the defendant intended to dispose hazardous substance. The court said that while an entity’s knowledge that a product it sells will be discarded may be a probative factor of its intent to “dispose of” that product, mere knowledge of future disposal will not trigger arranger liability.

Many commentators predicted the decision would allow many parties to elude liability for contribution or cost recovery at hundreds of superfund sites. While Burlington Northern has spawned additional rounds of discovery and motion practice, the predicted demise of generator liability has been-to paraphrase Mark Twain- greatly exaggerated. A recent decision from the Court of the Appeals for the First Circuit illustrates this point.

In United States v. General Electric, 2011 U.S. App. LEXIS 4148 (1st Cir. 2/29/12), two GE plants in New York manufactured capacitors that contained Pyranol that was valued for its dielectric properties. To manufacture Pyranol, GE purchased virgin Aroclors from Monsanto that was processed or refined until it achieved certain purity specifications. Pyranol that did not achieve the purity specifications was and stored in 55-gallon drums. The drums were labeled as “scrap Pyranol,” “waste Pyranol,” “scrap oil,” and located in designated salvage areas.

According to the opinion, GE eventually accumulated a glut of scrap Pyranol and explored a variety of arrangements to reduce its scrap Pyranol stockpile, including transferring scrap Pyranol to local landfills, selling it to local government entities for road dust suppressant, giving it away to its employees for use as a weed killer, or discharging it into the Hudson River. Meanwhile, Fred Fletcher (“Fletcher”) who owned a number of paint manufacturing and storage businesses had also been purchasing Aroclors from Monsanto as a “plasticizer” additive for his paints.

In the mid-1950s, Fletcher struck a deal with GE where he would buy scrap Pyranol to satisfy his plasticizing needs for what was characterized by the court as “bargain pricing.” During the ten-year period, Fletcher purchased over 200,000 gallons of scrap Pyranol ten year period, with almost half of the volume purchased between early 1966 and November 1967 when GE started using the third party transporter.

Sometime in 1966, Fletcher stopped making payments for what had become monthly shipments of scrap Pyranol. In November 1967, GE sent a collection notice to Fletcher. In response, Fletcher sent a letter to GE informing the company that the quality of the scrap Pyranol he received had markedly declined in recent years so that many of the scrap Pyranol drums Site were unusable. According to the court opinion, Fletcher wrote” All of a sudden we could not dispose of this Pyranol as you had apparently added something and we could find nothing to neutralize the additive you were using. Secondly you put the Pyranol in badly contaminated drums . . . . [Y]ou have shipped drums one quarter and one half full and drums of more than half water. In other words, what we were buying as a reasonable scrap product, turned into a large percentage of what is known as garbage in the Chemical trade.”

Fletcher proposed that GE retrieve those drums he could not use. He also said he would not accept receive any additional scrap Pyranol unless GE could ensure higher quality material. In response, GE conducted sampling of the scrap Pyranol drums to corroborate Fletcher’s claims that he had received poor quality scrap Pyranol. The testing confirmed Fletcher’s claim that much of the scrap Pyranol sent Fletcher in recent years had contaminated and/or unusable. GE then decided to forgive Fletcher’s debt but made no effort to retrieve or otherwise properly dispose of the thousands of drums of scrap Pyranol.  Indeed, a former GE employee testified at the trial that “We just hoped he was able to use some of it, and the balance of it he could dispose of it.” (court added emphasis)

In 1987, EPA found hundreds of drums at the Fletcher Site and implemented response actions. EPA sought cost recovery from GE in 2006 and following a bench trial, the federal district court for the district of New Hampshire ruled GE was liable as a CERCLA arranger. Following Burlington Northern, GE filed a motion requesting the court withdraw its ruling, arguing that it had sold a useful product and had not intended to dispose of hazardous substances.

The district court acknowledged that Fletcher used an unknown amount of scrap Pyranol as a plasticizer agent in his paint making operations. However, the court said the record was devoid of any evidence suggesting there was a general demand for scrap Pyranol.  The court said that if use as a plasticizer ingredient was indeed a practical or sustainable application for scrap Pyranol, GE as sophisticated profit-seeking entity would have either used it as an additive in its own paint making operations or sought to expand the market for its scrap Pyranol to purchasers other than Fletcher

The appeals court affirmed, finding that GE’s actions and inaction provided sufficient inference that GE had not sold a useful product but that the purpose of the Fletcher relationship was to dispose of hazardous substances. The court said that the fact that GE viewed the scrap Pyranol in its salvage areas as a waste product was not by itself sufficient to bring GE within the purview of arranger liability. It was the nature of GE’s dealings with Fletcher, the court said, showed that GE possessed the element of intent necessary to qualify as an arranger.

To evaluate GE’s intent, the court said it was necessary to examine what GE understood or knew what Fletcher intended to do with the large volume of scrap Pyranol that it received from GE during the relevant time period. The court said the record sustained an inference GE knew or otherwise understood that Fletcher was a small paint company that used an unknown amount of the scrap Pyranol he purchased as a plasticizer in his paint manufacturing operations. The court said that GE also understood that Fletcher saw some value in the scrap Pyranol because he paid for it and at times complained the quality of the material or rejected some material after testing it.

However, the court also noted that the GE-Fletcher relationship was dynamic and had evolved over time. The court pointed out that initially GE gave Fletcher between 100 and 500 drums of scrap Pyranol at no charge. Starting in 1956, though, GE required payment of $3.50 to $4.00 per drum. In addition, Fletcher was initially allowed to replace drums he claimed to be unusable free of charge. In 1964, GE began requiring Fletcher to pay for each drum that Fletcher transported from GE facilities to the Site. As a result, Fletcher’s employees started testing drums of scrap Pyranol for quality assurance at GE facilities before loading them onto Fletcher’s truck, and rejected those that failed the tests. GE started using a third party vendor to ship the drums to Fletcher in 1966.

The court said the arrangement between Fletcher and GE changed again during 1966. The court found that GE’s conduct over the following two years left little doubt that GE availed itself of its relationship with Fletcher to rid itself of the scrap Pyranol in its inventory. The court said there was nothing in the record that Fletcher solicited or wanted the dramatic increase in volume between 1966 and 1967. Indeed, the court said the evidence suggested that during this final stage of the GE-Fletcher relationship, GE largely controlled the flow of scrap Pyranol between GE facilities and the Fletcher Site.

The letter that Fletcher wrote in response to the GE letter was perhaps the proverbial icing on the cake to the court. The panel held that the letter put GE on notice that (1) large quantities of the hazardous substances that it had provided were of absolutely no use to Fletcher and were, at that moment, “piled” at the Fletcher Site, (2) Fletcher had not consciously accepted large quantities of the chemicals GE had delivered at the Fletcher Site (3) importantly, that Fletcher expected GE’s cooperation in resolving the matter of the more than 1,800 55-gallon drums of unusable chemicals sitting at the Site

Also persuasive to the court was GE’s actions and inactions after being advised by Fletcher that he had no use for large quantities of the scrap chemicals GE had sent because they were contaminated and had asked . Summing up the record, the court said it was clear that: (1) GE considered scrap Pyranol waste material; (2) because Fletcher, a “chemical scrapper,” saw some value in GE’s scrap Pyranol, GE, in turn, saw in Fletcher an auspicious and efficient manner in which to rid itself of thousands of gallons of scrap Pyranol; (3) GE understood that not all of its scrap Pyranol would be of use to Fletcher; (4) during the last years of the GE-Fletcher relationship, GE largely controlled the amount and quality of the scrap Pyranol shipped from its facilities to the Fletcher Site; (5) during this same period, scrap Pyranol transfers from GE to the Fletcher Site increased drastically and continued even once Fletcher became delinquent in paying his account; (6) Fletcher eventually complained that GE had sent him considerable amounts of contaminated or otherwise unusable scrap Pyranol — a claim that GE eventually confirmed through its own testing — and asked that GE retrieve those drums that were of no use to him; (7) crunching numbers, GE then concluded that writing off Fletcher’s debt and unburdening itself of the responsibility to dispose of the scrap Pyranol represented a more financially advantageous option than complying with Fletcher’s request; and (8) in accordance with this conclusion, GE took no further action, leaving Fletcher to dispose of the scrap Pyranol as he best saw fit.

Reviewing the total record, the appeals court said the evidence established that GE purposefully entered into its arrangement with Fletcher to rid itself of the scrap Pyranol. Though the initial informal arrangement may not have directed Fletcher to dispose of GE’s scrap Pyranol, the court said, GE certainly understood this would be the result of its actions and took the conscious and intentional step of leaving Fletcher to dispose of the materials.

The Supreme Court has now issued three important CERCLA decisions in the past ten years that appeared to undo two decades of CERCLA jurisprudence. Each time, the pundits have predicted that the decision could seriously curtail CERCLA liability. However, like the movie Night of the Living Dead, all these decisions have really done is to great lots of additional rounds of litigation with little impact on liability-albeit with some outliers. The only ones who seem to have benefitted from the Supreme Court wadding into the CERCLA liability pool have been the clever CERCLA litigators. Some wags have suggested that CERCLA has helped finance two generations of college students. If the Supreme Court keeps intervening in CERCLA litigation, CERCLA may reach middle age before it stops financing higher education.

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