An Environmental Alert: Recent Environmental Case Counsels Caution In Sale of Hazardous Scrap or Waste Materials

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Section 107(a)(3) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) makes a party that "arranged for disposal" of hazardous substances liable for the cost to cleanup a contaminated site when the party intended the disposal of its wastes. A company is not liable under CERCLA if it sold a useful product in the course of commerce, even if that product ultimately becomes the subject of an environmental cleanup. Exactly where to draw the line between an arrangement for disposal and the sale of a useful product has been troublesome for the courts. Therefore, it is possible that courts may interpret a transaction structured as a sale as an arrangement for disposal, subjecting the seller to unexpected cleanup liability. A recent decision from the United States Court of Appeals for the First Circuit highlights the dangers of getting rid of hazardous scrap materials by selling such materials to others.

In United States v. General Electric Co., the First Circuit issued an opinion that is among the first to interpret the scope of CERCLA "arranger" liability since the Supreme Court of the United States resolved some previously unsettled questions about the statute's reach in Burlington Northern & Santa Fe Railway Co. v. United States, 129 S. Ct. 1870 (2009). In its February 29, 2012 opinion, the First Circuit held that intent to dispose may be inferred from the circumstances surrounding a transaction ostensibly characterized as a sale of a useful product. The decision serves as a reminder to industrial operators of the uncertain and potentially substantial cleanup liability that could result from ill-advised attempts to get rid of hazardous scrap, byproduct or waste materials by means other than regulated disposal channels.

In General Electric, the First Circuit rejected General Electric's appeal of a trial court's decision holding it liable for the cost of cleaning up the contaminated site of a former paint manufacturer that had purchased large quantities of PCB-laden fluid from General Electric's capacitor manufacturing operations in New York. The "scrap" fluids that General Electric sold the paint manufacturer failed to meet General Electric's standards of purity for its own use but were apparently usable as an ingredient in the manufacture of paint. After the EPA incurred costs in cleaning up releases of the scrap fluids and other contaminants at the former paint manufacturer's site, the United States sued General Electric under CERCLA to recoup $13 million in cleanup costs. In this case, the court concluded, there was ample evidence that General Electric viewed the scrap fluids as "waste material" and that any profit derived from selling the fluids to the paint manufacturer "was subordinate and incidental to the immediate benefit of being rid of an overstock of unusable chemicals."

How Your Business May be Affected

The First Circuit's decision in General Electric demonstrates that an industrial operator risks uncertain and potentially substantial liability under CERCLA when it gets rid of hazardous scrap, byproduct or waste materials by selling such materials to others. Should the hazardous materials find their way into the environment at the buyer's facility, the seller may find itself liable for the cleanup even if the buyer appeared ready to put the material to productive use at the time of the sale rather than dispose of it.

For More Information

For further information as to your specific concerns, please contact a member of Polsinelli Shughart's Environmental and Natural Resources group.