First Circuit Takes Expanded View of Arranger Liability under CERCLA

A recent First Circuit Court of Appeals decision may help to define the line between “arranging for disposal” and the sale of a useful product that is later disposed of in an improper manner without the seller’s knowledge. In U.S. v. General Electric Company, Case No. 11-1034 (1st Cir. Feb. 29, 2012) (“GE Case”), the First Circuit explored the middle ground between these two extremes. Applying the U.S. Supreme Court’s decision in Burlington Northern & Santa Fe Railway Co. v. U.S., 129 S. Ct. 1870 (2009), the Court said the Burlington Northern Court did not intend to limit arranger liability to those “circumstances in which the stated or facially-evident purpose of the arrangement is to dispose of hazardous substances.” Instead, the First Circuit undertook an intense evaluation of the facts and found that GE was liable as an arranger even though GE had sold the hazardous substances at issue.

The Comprehensive Environmental Response, Compensation and Liabilities Act (“CERCLA”) imposes strict liability for the costs of cleanup on a party found to have “arranged for disposal or treatment . . . of hazardous substances,” 42 U.S. C. Section 9607(a)(3). In the GE Case, GE was alleged to be an arranger even though it sold a PCB-containing material known as Pyranol. The Court found that GE considered Pyranol to be a waste product for which there was no general demand or market and the lack of a viable market for Pyranol was “proof that GE did not view scrap Pyranol as a legitimate and serviceable product.” The Court went on to find that GE possessed the necessary element of intent to qualify as an arranger, focusing on GE’s knowledge of the buyer’s “intentions” regarding the large amount of Pyranol transferred or sold. The court also found that GE understood that not all of its Pyranol would be of use to the buyer and yet it shipped unusable material even after the buyer complained about the quality of the product and continued to ship material to the buyer even when the buyer became delinquent in his payments to GE. The Court further noted that when the buyer asked GE to retrieve the Pyranol that was unusable, GE failed to do so, leaving the buyer to dispose of the scrap Pyranol.

Even though the “sale” did not direct the buyer to dispose of GE’s scrap Pyranol, the Court found that GE knew that disposal would be the ultimate result of the “sale” and GE’s inaction was found to be the “conscious and intentional step” of leaving the buyer to dispose of the material. The Court looked beyond the face of the transaction, to the action and knowledge of GE, in finding that GE was an arranger for disposal.

This case is further evidence that the lower courts will try to narrow the holding of Burlington Northern and if supported by the facts, try to expand the reach of arranger liability under CERCLA. As the First Circuit reminds us in the GE Case, CERCLA was “intended to deter and, if necessary to sanction parties seeking to evade liability by “contracting away” responsibility”.