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Fifth Circuit Relieves Company of “Arranger” Liability under CERCLA: Comprehensive Environmental Response, Compensation, and Liability Act of 1980

On January 14, the U.S. Court of Appeals for the Fifth Circuit issued a significant decision regarding the scope of “arranger” liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and the Texas Solid Waste Disposal Act (TSWDA), reversing and vacating a Texas federal district court that had held BorgWarner liable for cleanup costs after a full bench trial. 

In Vine Street LLC v. Borg Warner Corp., No. 07-40440, the Fifth Circuit held that, in light of the U.S. Supreme Court’s decision in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009), BorgWarner was not liable to Vine Street, the current owner of a contaminated property, for cleanup costs because BorgWarner did not intend to dispose of the perchloroethylene (PERC) discharged from College Cleaners, a dry cleaning business.     

Background

This dispute centered on the operation of a dry cleaning business in Tyler, Texas, from 1961 to 1975. Norge, a former subsidiary of BorgWarner, supplied dry cleaning equipment, design assistance, and an initial supply of PERC—the chemical used in the machines to clean the clothes—to College Cleaners. Norge also installed, tested, and assisted with the initial operation of the machines.

Notably, Norge also designed the drainage system and connected the machines to the sewer system, including water separators designed to recycle PERC for future use. During this process, some PERC escaped into the sewer, resulting in soil and groundwater contamination. Vine Street filed suit against BorgWarner under CERCLA and the TSWDA to recover cleanup costs. In 2006, three years before the Supreme Court decided Burlington Northern, the district court conducted a bench trial and concluded that BorgWarner was a responsible person for the purposes of CERCLA and TSWDA. Although the district court found that Norge had not intended to discharge PERC into the ground, it held that under the then-prevailing Fifth Circuit precedent, a sufficient “nexus” existed between BorgWarner and its disposal of waste to impose arranger liability on BorgWarner.

Fifth Circuit’s Opinion

On appeal, BorgWarner did not challenge the district court’s factual findings and instead argued that, as a matter of law, it was not liable to Vine Street under either CERCLA or the TSWDA because its subsidiary did not intend to dispose of PERC when it sold dry cleaning equipment and an initial supply of PERC to the cleaners. Vine Street countered that because Norge knew that its water separators were not completely effective at recycling PERC, it disposed of PERC intentionally.

In its January opinion, the Fifth Circuit, quoting Burlington Northern, explained that to establish “arranger liability,” the plaintiff must show that the purported arranger took “intentional steps to dispose of a hazardous substance.” Moreover, under Burlington Northern, “knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.” The Fifth Circuit therefore concluded that “CERCLA arranger liability is premised upon an intentional act directed toward the disposal of hazardous waste.”

Under the Burlington Northern standard, the Fifth Circuit saw “no need to remand the case for any further fact finding” because “Norge’s actions were plainly unintentional . . . .” In addition, both parties acknowledged that PERC was a useful product that was necessary to operate College Cleaners. Norge also designed its machines to recycle as much PERC as possible for future use. Moreover, the purpose of the transactions was to successfully operate a dry cleaning business, not to dispose of waste surreptitiously under the guise of a transaction. Finally, even though there was evidence that Norge knew that some PERC would inevitably enter the sewer system, the Fifth Circuit held that such knowledge alone was insufficient to establish “arranger” liability under CERCLA. The court also held that Vine Street’s TSWDA claim failed for the same reasons as its CERCLA claim, noting that the Fifth Circuit had found previously that the Texas Supreme Court would likely apply Burlington Northern to a TSWDA claim.     

Implications

Vine Street represents a significant development in Fifth Circuit law. As stated above, prior to Burlington Northern, the law of the circuit imposed liability under CERCLA as long as there was a sufficient “nexus” between the purported arranger and the disposal of waste. That is no longer the standard. Now, in accord with Burlington Northern, arranger liability requires an intentional act directed to the disposal of a hazardous substance.

Copyright © 2017 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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