Fifth Circuit Holds Company Not Liable for Cleanup Costs Under Difficult-to-Establish CERCLA Arranger Liability

The Fifth Circuit recently issued a decision significantly limiting “arranger liability” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9607(a)(3).  The decision limited “arranger liability” to those who “take intentional steps to dispose of a hazardous substance,” and rejected imposing “arranger liability” on businesses that merely sell products used with hazardous substances.  Vine St. LLC v. Borg Warner Corp., No. 07-40440, 2015 U.S. App. LEXIS 581 (5th Cir. Jan. 14, 2015).

In Vine St., Norge (a former Borg Warner subsidiary) furnished dry cleaning equipment and an initial supply of perchloroethylene (“PERC”)—an expensive and potentially hazardous substance frequently referred to as “dry cleaning fluid”—to a dry cleaning business.  Additionally, Norge designed Vine Street’s drainage system by connecting the dry cleaning machines to the drains and sewer system.  As part of this system, Norge installed water separators to dispose of wastewater while simultaneously recycling PERC for future use.  As it turned out, the water separators were only about 95 percent effective, and some PERC discharged into the sewer.  The discharged PERC ultimately escaped from the sewer system and contaminated the properties of Vine Street and its neighbor.  After a bench trial, the district court ruled that Norge was liable to Vine Street for 75 percent of the costs associated with cleaning up the PERC.  Norge appealed.

In seeking an affirmance, Vine Street argued that Norge was correctly found liable under CERCLA because: (1) Norge intentionally disposed of PERC because it knew that the water separators were not effective; and (2) Norge engineered Vine Street’s drainage system.

In rejecting Vine Street’s arguments and reversing the district court, the Fifth Circuit relied on the U.S. Supreme Court’s decision in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009), which was decided after the bench trial finding Norge liable and clarified the applicable standard for CERCLA arranger claims.  In Burlington Northern, the Court interpreted “arrange” to mean “action directed to a specific purpose.”  Therefore, “an entity may qualify as an arranger under § 9607(a)(3) [only] when it takes intentional steps to dispose of a hazardous substance.”  Knowledge that one’s products would be used with hazardous substances is not enough to impose CERCLA liability.  “[K]nowledge alone is insufficient to prove that an entity ‘planned for’ the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.”

Recognizing the “intent” requirement, Vine Street argued in the alternative that—even if Norge did not intend to specifically pollute the groundwater—it nonetheless intended for PERC to discharge into the sewer.  The Fifth Circuit was unmoved by this argument.  “Although the distinction between an intentional and a knowing act is a relatively fine one,” Norge simply did not intend to dispose of PERC.  Rather, the purpose of the transaction between Vine Street and Norge was plainly to sell PERC and dry cleaning equipment, two unused, useful products.  The court found the fact that Norge engineered Vine Street’s drainage system inconsequential to the intent analysis.  Both parties intended the water separators to be effective in recycling the expensive PERC for future use; indeed the water separators’ success was imperative to both Vine Street’s and Norge’s business objectives.

The key takeaways from Vine Street and Burlington Northern are: (1) CERCLA arranger liability is premised upon an intentional act directed toward the disposal of hazardous waste; (2) intent stands in contrast to mere knowledge that waste will be disposed; and (3) therefore, CERCLA arranger liability should be a relatively difficult threshold for future CERCLA plaintiffs to satisfy.