Eighth Circuit Reverses CERCLA “Arranger” Decision, Citing Factual Issues Regarding Seller’s Intent
Posted on January 25, 2016
On December 10, 2015, the U.S. Court of Appeals for the 8th Circuit reversed a district court decision that had found, on a motion for summary judgment, that an Iowa company “arranged” for disposal of PCBs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) when it sold buildings to another party. U.S. v. Dico, Inc., — F.3d —- (2015).
The case involved Dico’s sale of buildings in Des Moines, IA, that contained PCBs. Pursuant to an EPA order, Dico had cleaned up the buildings but they still contained PCBs encapsulated in insulation materials. Without notifying EPA, Dico sold the buildings to Southern Iowa Mechanical (SIM). SIM dismantled the buildings and disposed of all materials—including the PCB-containing insulation—except for the buildings’ steel beams, which SIM retained at its place of business. Once EPA learned of the sale and disposal of Dico’s buildings, it ordered Dico to retrieve and properly dispose of the building materials. EPA claimed, and the district court agreed, that because Dico knew SIM was planning to dismantle the buildings following the sale and retain only the steel beams, no reasonable factfinder could conclude Dico did not intend to dispose of the remaining PCBs by selling the buildings. Accordingly, Dico was liable for the cleanup expenses as one who “arranged…for disposal” of hazardous substances under CERCLA section 107(b)(3).
On appeal, a three-judge panel of the Eighth Circuit held that the key issue was Dico’s intent in selling the buildings—whether Dico actually intended to sell them or was simply getting rid of responsibilities for the PCBs. The court concluded that the district court had improperly conflated Dico’s knowledge of SIM’s intended dismantling of the buildings with a per se intent to dispose of the PCB-containing building materials through the sale. This approach, the court determined, was precluded by the Supreme Court’s opinion in Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009), which called for a fact-specific inquiry in situations where “an entity who has some knowledge of the buyers planned disposal or whose motives for the sale of a hazardous substance are less than clear.” The Eighth Circuit cited approvingly factors used by other federal courts to determine a seller’s intent, including the intent of the parties to the contract with regard to disposal, the value of the materials sold, the usefulness of the materials in the condition in which they were sold, and the state of the product at the time of transferal. Applying these factors, the court concluded that significant factual issues remained regarding Dico’s intent in selling the buildings and, as such, summary judgment was inappropriate.
Notably the court addressed for the first time the so-called “Useful Product Defense,” which holds that a seller may be subject to CERCLA arranger liability only if the hazardous material in question constitutes “waste” rather than a useful product. In rejecting this bright-line approach, the court stated that like knowledge of eventual disposal, the usefulness of a product is “an important but not dispositive factor to consider in determining the seller’s intent.”