Comprehensive Environmental Response, Compensation, and Liability Act
California Department of Toxic Substances Control v. Alco Pacific, Inc., 508 F.3d 930 (9th Cir. 2007).
The California Department of Toxic Substances Control (California) petitioned the Ninth Circuit for review of the District Court for the Central District of California's grant of summary judgment to numerous corporate defendants (1) in litigation stemming from a state-initiated cost recovery action under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). (2) California had sued for cleanup costs it incurred in remedial action at a former lead processing facility operated by Alto Pacific, Inc. and Morris P. Kirk (Alco). The State argued that the defendants, who sold lead-containing materials to Alco, arranged for disposal of hazardous products within the meaning of CERCLA section 107(a)(3). The district court, granting the defendants' motion for summary judgment, determined that the "useful product" doctrine applied to Defendant's sales; therefore, the defendants were not subject to arranger liability. The Ninth Circuit determined that whether the useful product doctrine applied to defendants' products was a triable issue of material fact. The Ninth Circuit reversed the grant of summary judgment and remanded the case.
From approximately 1950 to 1990, Alco operated a lead processing facility and reclaimed lead from raw materials acquired from thousands of sources. This decision focused on two particular sources: "dross" and "slag." Dross and slag are byproducts of the smelting and refining process, and contain some useful material. High lead content dross and slag were byproducts of defendants' operations, and defendants sold these byproducts to Alco at a price based on the lead content of the material and the market price of lead. Alco processed the dross and slag and produced various products from the reclaimed lead. Alco disposed of slag at a proper facility and reused dross in its smelting operations; however, the surface of the site exhibited substantial lead contamination arising from spills and other releases that occurred during smelting operations.
The State incurred significant cleanup costs at the site and filed an action seeking reimbursement for past costs and declaratory relief for future costs. The district court granted summary judgment to defendants, concluding as a matter of law that the sales transactions fell within the useful product doctrine. Thus, defendants were not subject to arranger liability under CERCLA. The Ninth Circuit reviewed the grant of summary judgment de novo, construing all evidence in favor of the State.
Under CERCLA, a plaintiff may recover cleanup costs from a potentially responsible party (PRP) if the PRP is covered by any of four categories, including "any person who ... arranged for disposal or treatment.., of hazardous substances ... at any facility...." (3) Arranger liability extends to transactions where the central purpose is disposal of a hazardous substance and to "transactions that contemplate disposal as a part of, but not the focus of, the transaction." (4) "Disposal," under the statute, includes "the discharge, ... spilling, leaking or placing of any ... hazardous waste...." (5) This and other CERCLA definitions necessarily implicate the concept of waste, so the Ninth Circuit, along with other circuits, has developed the "useful product doctrine." That doctrine provides that a person may be held liable as an arranger only if the transferred material constitutes waste rather than a useful product. Because this doctrine has developed gradually through case law, the court examined its prior opinions to tease out the contours of the doctrine.
The court first examined Louisiana-Pacific Corp. v. ASARCO, Inc. (ASARCO). (6) In ASARCO, a copper smelter sold slag to a middleman who resold it to log yards for use as ballast. Eventually, the slag became mixed with debris, and the log yards hauled it to a landfill, which became contaminated with heavy metals from the slag. The Ninth Circuit examined whether the slag could be both a product with intrinsic value under Washington state law, and also hazardous waste under CERCLA. The court noted that the slag had only nominal commercial value, and ASARCO previously disposed of the slag as waste. It then distinguished ASARCO from prior cases on the ground that, while prior cases involved principal business products, ASARCO involved by-products that producers needed to dispose of. Under the circumstances in ASARCO, the copper smelter could be liable as an arranger for contamination arising from the slag sold to the log yards.
The Ninth Circuit next considered Catellus Development Corp. v. United States (Catellus). (7) In Catellus, an auto parts dealer sold used automotive batteries to a battery cracking plant that extracted the lead and then crushed and dumped the battery casings, causing lead contamination. Noting that disposal of the casings was inescapable, the Catellus court concluded that the casings were discarded material despite the sale of the battery to a third party, and the defendant could be held liable as an arranger even though it did not control disposal of the casings. The court then reasoned that if continued ownership or control was required, a party could easily escape its responsibility to dispose of a hazardous substance through a sale. Therefore, if the substance had the characteristics of waste at the time it was delivered to a third party, arranger liability may attach.
The Ninth Circuit then referred to Cadillac Fairview/California, Inc. v. United States (Cadillac). (8) In Cadillac, Dow supplied styrene to rubber companies, and the rubber companies contaminated the styrene with hazardous substances during the manufacturing process. The rubber companies then sent the contaminated styrene back to Dow, and, after removing the contaminants, Dow sold the cleaned styrene back to the rubber companies for a profit. Dow was later sued for contamination, and sought contribution from the rubber companies. After noting that ASARCO and Catellus allowed for arranger liability in the absence of ownership or control over disposal of hazardous substances, the Cadillac court determined that release of hazardous substances was the very purpose of returning the contaminated styrene. Therefore, the trier of fact could find the rubber companies arranged for disposal of waste, and the Cadillac court vacated the lower court's grant of summary judgment to the rubber companies.
Next, the Ninth Circuit considered A & W Smelter & Refiners, Inc. v. Clinton (A & W). (9) In A & W, the court reversed and remanded a grant of summary judgment finding an ore pile to be waste because it could not be used in its current state. The court noted that the ore pile was a raw material, and, because the raw materials must be refined before use, the ore pile was waste only if it was mixed with so much slag that it could not be used for A & W's principal business.
Finally, the Ninth Circuit looked to its recent holding in United States v. Burlington Northern & Santa Fe Railway Co. (Burlington). (10) In Burlington, Shell shipped bulk agricultural chemicals to Brown & Bryant, Inc. (B & B), a wholesaler. B & B's site became contaminated through spillage during transfers of bulk chemicals from Shell's trucks to B & B's storage tanks, and the corrosive chemicals are through the storage tanks. The Burlington court noted that arranging for a transaction that necessarily involved some disposal was sufficient to impose liability, and it held that the useful product doctrine has no applicability where the sale of an otherwise useful product necessarily and immediately results in the leakage of hazardous substances. The Burlington court held that, because Shell owned the chemicals at the time of sale and had sufficient control over and knowledge of the delivery process to be considered an arranger, Shell was liable as an arranger for the portion of chemicals that spilled or leaked prior to use.
After considering these prior cases, the Ninth Circuit noted that the district court in this case did attempt to synthesize the Circuit's prior holdings concerning arranger liability and the useful product doctrine. Although the Ninth Circuit declined to adopt a bright-line test, it noted the factors considered by the district court were appropriate to determine, in light of all the circumstances, whether a transaction is an arrangement for disposal. Those factors included 1) the commercial reality of the transaction, 2) the actions of the seller that illustrate intent, and 3) whether the material was a principal product or by-product. Although the Ninth Circuit cited these factors with approval, it noted that a reasonable finder of fact could use these same factors to find that defendants did arrange for disposal. Therefore, the Ninth Circuit held the district court misapplied the factors and erred in granting summary judgment to defendants.
The Ninth Circuit first noted that the "commercial reality of the transaction" factor could support the district court's ruling because the price of dross and slag were linked to the value of lead to be extracted. The court, after noting that the low price paid for the dross and slag is not dispositive, stated that "it is the de-linking of the price of a substance from market price ... that supports a conclusion" (11) that the sale was a disguised disposal, not the actual price paid. In addition to price, other important considerations include evidence of frequency and volume of transactions, prior dealings between the parties, the nature of the buyer's processing of the materials, and previous or alternative arrangements for disposal of byproducts. The dross and slag in question is a by-product of defendants' businesses, and this undercuts the assertion that defendants sold a...
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