The United States Court of Appeals for the First Circuit recently issued an opinion holding that arranger liability under Section 9607(a)(3) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) can attach to a potentially responsible party (PRP) even if a PRP does not direct a site owner to dispose of hazardous substances.
In U.S. v. General Electric Co., No. 11-1034, __ F.3d __, 2012 WL 639189 (Feb. 29, 2012), the First Circuit affirmed the District Court’s decision that General Electric Co. (GE) was liable for response costs associated with the cleanup of a paint manufacturing site. In the 1950s and 1960s, GE used Pyranol, an insulating material made from polychlorinated biphenyls (PCBs), for the manufacture of electric capacitors. Any Pyranol that did not meet GE’s purity specifications was sold to Fred Fletcher, a local paint manufacturer. Fletcher used the Pyranol as a plasticizer additive for his paints. During a ten-year period, over 200,000 drummed gallons of Pyranol made the journey from GE to the Fletcher site. In the late 1960s, however, Fletcher stopped paying GE for the Pyranol deliveries because, according to Fletcher, the quality of the material had declined to the point of being unusable. Fletcher refused to receive any more shipments of Pyranol from GE, and requested GE to retrieve the unusable material. GE conducted testing which confirmed Fletcher’s claim that the Pyranol was unusable. It forgave Fletcher’s debt for the purchased Pyranol, but declined to remove the accumulated material.
In 1987, the U.S. Environmental Protection Agency (EPA) discovered hundreds of drums containing Pyranol at the Fletcher site. The EPA sued GE as a party who “arranged for disposal” of hazardous substances under CERCLA. After the District Court found GE liable, on appeal the First Circuit began its analysis by noting that the spectrum of arranger liability is broad. At one end is an entity that enters into a transaction for the purpose of discarding a useless hazardous substance; at the other end is an entity that sells a useful product which is later disposed of improperly without the entity’s knowledge.
For cases in the middle, the U.S. Supreme Court case Burlington Northern and Santa Fe Railway Co. v. U.S., 129 S. Ct. 1870 (2009) offers some clarity on when arranger liability should attach. The defendant in that case had been sued under a theory of arranger liability after incidental amounts of pesticides it sold had spilled during deliveries. Burlington Northern held that mere knowledge of future disposal will not trigger arranger liability, particularly “when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.” Rather, the Supreme Court held, arranger liability will attach when an arranging entity intends to dispose of hazardous substances.
GE’s argument before the First Circuit rested primarily upon Burlington Northern, taking the position that like the defendant in Burlington Northern, GE did not have actual intent to dispose of the Pyranol at Fletcher’s site because the purpose of GE’s agreement with Fletcher was based upon Fletcher’s use of the Pyranol as a useful ingredient in paint. The Court, however, found that GE’s conduct bore little resemblance to the Burlington Northern defendant. It held that GE clearly viewed the Pyranol as a waste, rather than a useful product, and that any profit it derived from selling it to Fletcher was incidental to the benefit of ridding itself of the material. Moreover, beyond Fletcher’s idiosyncratic interest in the Pyranol, there was no viable market for the material. Also important to the Court’s analysis was that GE knew and understood that Fletcher was unable to use much of the Pyranol GE sent to the site. Even after Fletcher became delinquent in paying for the deliveries, GE continue to send him Pyranol. Further, the Court pointed out that a crucial distinction between GE and Burlington Northern was that in Burlington Northern, the defendant took active steps to reduce chemical spillage. In contrast, GE took steps to ensure that the unusable Pyranol remained at Fletcher’s site.
Connecting these dots, the First Circuit held that GE’s conduct firmly established GE’s intent to dispose of Pyranol that it could not itself use at the Fletcher site. Thus, while Burlington Northern established a limit on the reach of arranger liability, the First Circuit’s decision illustrates that CERCLA Section 9706(c)(3) still casts a wide net. Even if the stated purpose of an arrangement is not disposal of hazardous substances, an intent to dispose can exist and arranger liability can still attach.