Opinion from Eastern District of New York May Have Opened the Door to a New Defense for Potential CERCLA “Arrangers”

In Town of Islip v. Datre, a recent decision out of the Eastern District of New York, the court adopted an approach to “arranger liability” under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) that holds parties cannot be liable unless they knew that the substances they arranged for disposal were, in fact, hazardous. The Islip court’s approach represents a departure from traditional considerations of arranger liability and, if followed by future courts, may present a defense for potentially responsible parties who, though intentionally arranging for disposal of materials which ultimately lead to contamination, lacked specific knowledge that such materials contained hazardous substances.

The Islip case arises out of illegal dumping of hazardous construction and demolition debris that occurred at a public park (“the park”) in Islip, New York between 2013 and 2014. Though the case involves an elaborate and bizarre dumping scheme involving, among many others, a local church, the parks department, and a number of haulers, as well as the eventual filing of criminal charges, it is sufficient for present purposes to distill the facts as follows. Relevant to the issue of arranger liability, a civil complaint filed by the Town of Islip (“the Town”) alleged that two companies (the “arranger defendants”) acted as brokers between those defendants who generated the construction and demolition debris and the defendants who illegally dumped the waste at the park.

For their role, the Town charged that the arranger defendants were liable as “arrangers” under §9607(a)(3) of CERCLA and sought contribution. The arranger defendants moved to dismiss the CERCLA claims. The court ultimately sided with the arranger defendants and concluded that to make out a case for arranger liability, plaintiffs must “establish that the defendant who arranged for the disposal of material knew, or should have known, that the material contained hazardous substances.”

CERCLA imposes strict liability on four classes of potentially responsible parties, including those responsible as “arrangers” under §9607(a)(3). Reduced to simplest terms, a party is an “arranger” under CERCLA simply if it “arranges” with another for the “disposal . . . of hazardous substances.” In Burlington Northern and Santa Fe Ry. Co. v. U.S., the Supreme Court explained that where an entity enters into a transaction “for the sole purpose of discarding a used and no longer useful hazardous substance,” it is plainly liable as an arranger. Conversely, where an entity merely sells “a new and useful product,” they will not be held liable as an arranger merely because that purchaser later disposed of the product in a manner leading to contamination. This latter category—in which the alleged arranger sells a useful product rather than disposes of waste—is sometimes referred to as the “useful product defense.”

The difficulty, the Court recognized, arises in cases that fall between these two categories, like for instance, where a seller had “some knowledge of the buyers’ planned disposal or whose motives for the ‘sale’ of a hazardous substance are less clear.” Implicit in the Court’s discussion is a functional distinction between disposals, which create liability, and sales, which generally will not. However, sometimes a “sale” might really be intended as a disposal and sometimes a transaction truly intended as a sale might result in an outcome that could otherwise qualify as a “disposal” under CERCLA’s expansive definition. Observing that “the word ‘arrange’ implies action directed to a specific purpose” the Burlington Northern Court ultimately determined that a party is liable as an arranger “when it takes intentional steps to dispose of a hazardous substance.”

With respect to Islip, it is important to note at the onset that it is not a “useful product” case. In fact, the court in Islip explicitly found that the arranger defendants “intended to arrange for the disposal of the material.” Seemingly then, the arranger defendants’ actions would place them into the first Burlington Northern category. Stepping back from the sale vs. disposal dichotomy, however, the court determined that while disposal was unquestionably the intent, the disposal of hazardous substances was not intended. Arranger liability, according to the Islip court, thus turns in the first instance on whether or not the alleged arranger knew, or should have known, that the material at issue was hazardous.

The Islip decision rests on a strict reading of §9607(a)(3) and of Burlington Northern’s instruction that an arranger is liable “when it takes intentional steps to dispose of a hazardous substance.” Though the Burlington Northern Court was chiefly concerned with the question of whether or not the defendant’s intention was to sell or to dispose of the material in question, the Islip court viewed the holding to identify an even more basic requirement: i.e., that the arranger have specific knowledge that the substance it intends to dispose of is hazardous. In the Islip court’s reading of Burlington Northern, regardless of the category (whether a disposal or sale of a useful product) it is not enough that one intend to dispose; rather, they must specifically intend to dispose of materials with the knowledge that they contain hazardous substances.

While the Islip court did not cite to any cases in which this reading of Burlington Northern was strictly relied upon, it did offer considerable analysis of a case in which a court viewed knowledge of a substance’s hazardousness as a potential threshold issue for arranger liability. In Appleton Papers Inc. v. George A Whiting Paper Co. a paper recycler charged that a paper manufacturer, who sold “broke” to the recycler, was liable as an arranger. Broke is an industry term for the excess paper trimmings created during paper manufacture. The manufacturer bundled, treated, and sold its broke to the recyclers, at a market rate, to be recycled into new paper which the recyclers would then sell. In the process of being recycled into paper, the broke shed toxic materials that were then released into a local river. The recyclers later asserted, in a CERCLA action, that the manufacturers were liable as arrangers.

Though unquestionably a “useful product” case, the Appleton Papers court nonetheless observed that, in light of Burlington Northern’s specific reference to intentional disposal of “hazardous substances,” it is “doubtful that a defendant can ever be found to be an arranger if he did not know the substance in question is hazardous.” The Appleton Papers court thus suggested a reading of Burlington Northern that is fully consistent with Islip. However, the Appleton Papers court’s observation was arguably no more than dictum; its decision ultimately turned on more conventional notions, indicating that the manufacturer’s intent was to sell what it viewed to be a useful product. Indeed, when the decision was affirmed by the Seventh Circuit, it did so by refusing to disturb the lower court’s finding that the paper manufacturer’s intent was to sell a useful product, not to dispose of a waste product. The Seventh Circuit did not otherwise comment on the trial court’s somewhat hypothetical reading of Burlington Northern.

The Islip court also grounded its position in more general arguments as well. For instance, it maintained that its proposed reading is not only consistent with CERCLA’s preventative purpose, but is also a fair reading of the statutory language itself, which imposes liability where one has arranged “for disposal. . . of hazardous substances.” Because the word “arrange” implies “action directed to a specific purpose,” the Islip court reasoned that the specific purpose was disposal of hazardous substances—and not just substances.

Ultimately though, whether or not the Islip court’s reasoning is consistent with CERCLA’s language and purpose, its conclusion is unquestionably a novel one. The Islip court presented no decisions that have relied upon a similarly strict interpretation of §9607(a)(3) or Burlington Northern. It thus remains to be seen whether or not other courts will follow the lead of Islip. If they do, those potentially responsible as arrangers, and in particular, those for whom intent to dispose is beyond question, may now have a very useful tool to defend themselves.