Type: Law Bulletins
Date: 07/08/2019

Corporation Held Liable as CERCLA Arranger For Knowingly Offloading Contaminated Buildings

In United States v. Dico, Inc., 920 F.3d 1174 (8th Cir. 2019), the Eight Circuit expanded CERCLA arranger liability by finding that the former owner of a contaminated property was an arranger for selling the property knowing that the buyer was likely to demolish the contaminated building. Dico, Inc’s (Dico) site had a building contaminated by PCBs in its insulation and was subject to an Environmental Protection Agency (EPA) administrative cleanup order. Without informing the EPA, Dico sold the contaminated buildings to Southern Iowa Mechanical (SIM). Dico did not tell SIM about the PCB contamination or the EPA order. SIM tore down the contaminated buildings and EPA sued Dico to recover cleanup costs. EPA alleged that Dico was subject to CERCLA liability because it arranged to dispose of a hazardous substance.

CERCLA imposes strict liability for environmental contamination upon any entity that “takes intentional steps to dispose of a hazardous substance.” See Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009). In Burlington Northern, the Supreme Court limited arranger liability to those entities that “enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance.” Id. at 610. But, an entity could not be an arranger for “merely selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination.” Id. Since the Supreme Court’s decision in Burlington Northern, several federal circuit courts of appeals have struggled with its application.

In an expanded application of Burlington Northern, the Eight Circuit held that Dico was an arranger. The court found that SIM’s disposal of the contaminated insulation was not “unbeknownst to the seller.” Applying the reasoning in Burlington Northern, the court determined that although “knowledge alone is insufficient to prove” arranger liability, an entity’s “knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity’s intent to dispose of its hazardous wastes.” The court found that Dico intended to avoid environmental liability through the sale of the contaminated building. Dico knew that SIM would dismantle the contaminated buildings once sold, and Dico sold the buildings with the intention that SIM would dismantle the contaminated buildings.  

The court also noted that the costs Dico avoided from the sale, which greatly exceeded the purchase price of the buildings, was strong evidence of Dico’s intent to avoid environmental liability. Dico knew that the remediation would cost roughly one million dollars, but before doing any remediation of its own, it sold the property to SIM for approximately $100,000. Lastly, the court noted that the failure to disclose the site’s contaminated condition or the EPA order weighed in favor of concluding that Dico arranged for the disposal of hazardous substances. Ultimately, the Eighth Circuit affirmed that this type of arrangement was precisely the kind of behavior that cannot be used to avoid CERCLA liability.

Placido Zambrano, Taft summer associate, contributed to this article.

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