In an April 11, 2019, ruling, a panel of the U.S. Court of Appeals for the 8th Circuit affirmed a district court decision that found that two companies that sold a contaminated property to another company were jointly and severally liable for $5.4 million in response costs; one of the companies was also found liable for punitive damages equal to the amount of the response costs.

The panel wrote that the district court was correct in identifying the defendants as arrangers as that term is used in Section 9607(a)(3) of the Comprehensive Environmental Response and Liability Act (CERCLA). The district court had rejected the defendants’ arguments that they had not intended to use the sale to shift the responsibility for the hazardous waste release to the buyer. The 8th Circuit panel agreed with the district court judge, noting, among other things, that the cost of remediation was many times the purchase price of the property. The panel said that the “costs avoided” through the sale are evidence of the defendants’ intent to arrange for the disposal of the contaminated properties.

Much of the panel’s ruling focused on why the defendants were arrangers as that term was discussed by the U.S. Supreme Court in Burlington Northern & Santa Fe Railroads v. United States (2009).

PCB contamination

The case involves several buildings in Des Moines, Iowa, owned by Dico Inc., a manufacturing company. In 1994, the EPA ordered Dico to remove polychlorinated biphenyls (PCBs) in the buildings’ insulation and submit a long-term maintenance plan for EPA approval. According to the panel, in 2007, without informing the EPA, Dico—through its corporate affiliate Titan Tire Corporation—sold the buildings to Southern Iowa Mechanical (SIM). Titan did not tell SIM that the buildings were contaminated with PCBs and subject to an EPA order. SIM tore down the buildings and stored them in an open field, where the EPA later found PCBs.

The EPA sued Dico to recover damages for its cleanup costs. It alleged that Dico violated CERCLA by arranging to dispose of a hazardous substance. The EPA also alleged that Dico violated the 1994 order by circumventing the long-term maintenance plan, failing to prevent the additional release of PCBs, and failing to notify the EPA of changed site conditions.

The district court granted summary judgment, finding that Dico and Titan arranged to dispose of a hazardous substance in violation of Section 9607(a)(3) and held them jointly and severally liable for $5,454,370 in response costs. The court also held Dico liable for the same amount in punitive damages for violating the EPA’s 1994 order.

Disposal as a foreseeable by-product

Perhaps the main goal of CERCLA is to ensure that those who cause the release of hazardous substances to the environment shoulder the cost of remediation. To that end, the statute contains prohibitions against shady business dealings to which potentially responsible parties (PRPs) may resort to shift the cleanup responsibility and cost to another party or parties that are less liable than they or not liable at all. In writing CERCLA, Congress addressed this concern by specifying that anyone who “arranges” for the disposal of hazardous substances by another party is a “covered person” who is responsible for all costs of removal or remedial action incurred by the United States, states, or tribes. Section 9607(a)(3) states that a liable or “covered person” is one:

“… 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.”

While CERCLA does not define arranger, the Supreme Court expands upon the term in Burlington. The Court noted, for example, that an entity could qualify as an arranger if the “disposal of hazardous wastes [wa]s a foreseeable byproduct of, but not the purpose of, the transaction giving rise to arranger liability.” But the Supreme Court also pointed out that because of the absence of a statutory definition, determining whether an entity is an arranger requires a “fact-intensive inquiry” that looks beyond the parties’ characterization of the transaction as a “disposal” or a “sale” and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability provisions.

Defense arguments rejected

Dico and Titan offered several defenses.

• The district court gave insufficient weight to evidence that the transaction was legitimate. For example, the terms of the 2007 sale mirror the terms of Dico and Titan’s 2004 sale of a weld shop to SIM. Dico and Titan argue that because the 2004 sale was legitimate, the 2007 sale was also legitimate.

The panel responded that the district court properly found that similarities in the transactions are by no means conclusive evidence that Dico and Titan’s intent regarding the former was the same as their intent regarding the latter.

• The usefulness of part of the buildings is evidence of a legitimate transaction. The district court had found that the contaminated buildings’ structural-steel beams were reusable if sampled and decontaminated.

The district court also found that the commercial usefulness of the beams “weigh slightly in favor of concluding defendants did not intend to arrange for the disposal of hazardous substance by selling the contaminated buildings to SIM.” But the district court added that this factor was outweighed by evidence that Dico and Titan intended to dispose of the PCB contamination through the sale. The panel agreed.

• The district court gave too much weight to costs avoided because the precise costs avoided are debatable, and there is no evidence that Dico and Titan actually calculated costs avoided before the sale.

The panel was unpersuaded by this argument, as well. “Regardless of the precision of the estimate, the record supports the finding that proper disposal or remediation would have cost Dico hundreds of thousands of dollars, far exceeding the $117,000 SIM paid for the buildings,” said the panel. “These costs avoided are evidence of Dico and Titan’s intent to arrange for the disposal of the contaminated buildings, even without evidence they made the same calculations as the district court.”

In addition, both courts rejected Dico’s contention that it should not be forced to pay $5.4 million in punitive damages for violating the EPA’s order. Section 907(c)(3) of CERCLA allows a party that fails to comply with a cleanup order to be held liable for punitive damages up to three times the costs incurred by the United States out of the Superfund Trust Fund to carry out the cleanup action that the party did not perform. The courts did not find Titan liable for this payment.