The U.S. Supreme Court’s decision on "arranger liability" under Superfund in Burlington Northern & Santa Fe Ry. Co. v United States continues to reverberate. The most recent manifestation is a January 31, 2013, decision by the U.S. District Court for the Eastern District of North Carolina in Carolina Power & Light Co. v. Alcan Aluminum Corp. In that decision, the Court granted summary judgment to Georgia Power Co. on the basis that its sale of used transformers to the operator of the Ward Transformer Superfund Site (Site) did not amount to an "arrangement for disposal." In examining the "fact-specific circumstances," the Court determined that the evidence established that these transactions were sales of a "useful product" rather than ones with an intent to dispose of a hazardous substance.
The Site is an extensively contaminated facility in Wade County, North Carolina that for many years was the location of a transformer repair and recycling facility. Extensive cleanup has already taken place, and additional remediation is underway and planned. Total costs of the cleanup are expected to exceed $100 million.
Two potentially responsible parties, Carolina Power & Light and Consolidation Coal, entered into an administrative settlement with EPA to perform, inter alia, an initial removal action. They then sued more than 100 companies for cost recovery and contribution under Sections 107 and 113(f) of Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The Section 107 claims were dismissed at an earlier stage of the litigation on the basis that Section 113 provides the exclusive avenue for cost recoupment by parties that have settled with the government.
Over the years, Georgia Power had sold to Ward numerous transformers that allegedly contained dielectric fluids with polychlorinated biphenyls (PCBs). These sales were arms-length transactions, generally through auctions in which there was more than one bidder. Prior to their sale, Georgia Power cleaned most of these transformers by a “double-pumping” method. While removing free-flowing oil, that method admittedly left a sheen or residue of oil on the metal surfaces of the transformers.
In evaluating these transactions, the Court found it dispositive that (1) the transformers were sold in arms-length transactions; (2) they had “marketable value” (between $150 and $3200) when sold; (3) they continued to be “useful materials” after the sale, as demonstrated by the fact that they were refurbished and resold by Ward for a profit; and (4) Georgia Power drained and disposed of PCB-laden oil in the transformers before selling them.
Looking to the standards enunciated in Burlington Northern, the Court determined that “Georgia Power’s purpose for these transactions was to sell transformers to Ward and not [to] dispose of the oil containing hazardous waste. . . .Therefore, Georgia Power has met its burden on summary judgment by showing it did not have the necessary intent to create arranger liability under CERCLA.”
This decision marks a further evolution of the case law on “arranger liability” that has been developing in the wake of Burlington Northern. Burlington Northern involved sale of a new product. Here, the product was used, but it had not outlived its useful life. And, as in Burlington Northern, the seller was able to point to its the affirmative efforts to prevent any contamination that could result from the transaction.
The lesson is clear: the key issue in “arranger” cases is not whether the disposal could have resulted in contamination. It’s the intent of the alleged disposer, as gleaned from the myriad facts which could shed light on that intent. Cases once thought to be “open-and-shut” are now being aggressively litigated based on this new understanding of the scope of arranger liability under Superfund.
David J. Freeman is a Director in the Gibbons Real Property & Environmental Department.