After a seven-day bench trial, the United States District Court for the Eastern District of Wisconsin upheld the CERCLA useful product defense. Appleton Papers, Inc. and NCR Corporation v. George A. Whiting Paper Co., et al., Case No. 08-C-16 (E.D. Wis. July 6, 2012). I previously wrote about the Ninth Circuit’s support of the useful product defense for the sale of dry cleaning equipment in Team Enterprises, LLC v. Western Investment Real Estate Trust, LLC, 647 F.3d 901 (9th Cir. 2011).
The Appleton Papers district court conducted a thorough analysis of the evidence to determine whether bales of paper (called “broke”) that are no longer useable by the paper manufacturer, yet contain residual PCBs, may be sold without triggering CERCLA arranger liability. Answer: No liability. The district court examined the U.S. Supreme Court’s decision in Burlington Northern and Santa Fe Ry. Co. v. United States,1 and the Ninth Circuit’s decision in Team Enterprises, to reach the following conclusions (shown as bolded headings in the court’s original Conclusions of Law on Arranger Liability):
1. Knowledge Alone is Not Enough: Although some employees may have known that the broke would be disposed of, and end up in the river subject to the CERCLA response action, knowledge alone was not enough to trigger “arranger” liability under CERCLA §107. There must be more, namely, the intent to dispose of the broke in the river, and knowledge that the broke contained hazardous substances. As the court succinctly put it: “Indifference is, at most, what occurred here.” Slip Op. at 15. The court used the example of scrap sales to demonstrate why there was no liability:
Suppose someone has scrap copper lying around, which is of no value to him but is valued by others. To him it is scrap, but to others it is useful and therefore valuable. When he sells the scrap to a dealer, he might have some general inkling that the copper could be used in wire or tubing or any number of other applications, but as far as he is concerned his purpose is simply to make a little money. And, although he wants to get the scrap off of his property, there is nothing harmful or toxic about the scrap that would give him extra motivation to have it disposed of or to cause him to think about its final destination. He is simply indifferent to the final destination of the copper.” Slip Op. at 14-15.
2. No Intent to “Dispose”: The court noted that the broke was sold for money, and that fact alone distinguished the transaction from disposal. The court conceded that from the standpoint of the paper manufacturer (generator), the broke was waste because there was no use for it. But the sale of the broke spoke most loudly about whether the broke was also “useful” from a subjective view. The court agreed with, and yet distinguished, the First Circuit’s decision in General Electric v. United States2 that rejected General Electric’s effort to raise the useful product defense to avoid arranger liability for multiple 55 gallon drums of PCBs, known to be a toxic substance. The district explained why the two cases were consistent in applying the law, but not in the result: GE’s principal motivation was “to get rid of it [many drums of toxic PCBs].” Selling broke, on the other hand, was part of the company’s “business model.” Slip Op. at 17.
3. APC [Appleton Papers] did not Know the Broke Contained Hazardous Substances: The district court found that the manufacturer did not know that the broke contained hazardous substances. Therefore, “[i]t seems doubtful that a defendant can ever be found to be an arranger if he did not know the substance in question is hazardous.” Slip Op. at 18 (emphasis in original). The court’s emphasis on the generator’s knowledge of the hazardous substance content is significant, and no doubt disconcerting to the Department of Justice, which has uniformly asserted that knowledge of the content of the material is irrelevant to CERCLA §107 liability. Apparently this court disagrees with DOJ because “[whether the generator knows it contains a hazardous substance] also speaks to intent.” Slip Op. at 18. “Here, when the dangerousness of the product is unknown to the would-be arranger, it is difficult to find that the disposer was trying to evade liability for that danger.” Slip Op. at 19, citing with approval the Burlington Northern discussion that a purpose for imposing arranger liability was to deter parties seeking to evade liability by contracting away responsibility.
The district court’s opinion in Appleton Papers will no doubt result in a kerfuffle in the halls of DOJ and EPA. This case warrants following because if the parties do not appeal the district court’s decision, it is reasonable to expect federal government intervention to cause a different outcome.
1 556 U.S. 599 (2009).
2 677 F.3d 377 (1st Cir. 2012).