Fourth Circuit Continues Trend Toward Narrowing Scope Of Cercla Arranger Liability

Action Item: With federal courts moving toward limiting arranger liability under CERCLA, companies that sell new or used products containing hazardous substances should heed the guidance of those courts and take certain precautions to minimize their exposure to liability.

The United States Court of Appeals for the Fourth Circuit is the latest federal appellate court to address the element of intent necessary to establish a claim for arranger liability under § 107(a)(3) of the Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA"), 42 U.S.C. § 9607(a)(3). On March 20, 2015, the Fourth Circuit in Consolidation Coal Co. v. Georgia Power Co., No. 13-1603 (4th Cir.), held that an electric utility lacked the requisite intent to dispose of hazardous substances to qualify as an arranger when it sold used, but functional electrical transformers lined with oil containing polychlorinated biphenyls ("PCBs") at competitive auctions to a purchaser who subsequently repaired, rebuilt, and resold the transformers to third parties for a profit. This ruling is consistent with a seeming trend toward limiting arranger liability since the United States Supreme Court issued its landmark decision in 2009 in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009). The ruling in Georgia Power also evidences the highly factual, case-specific analysis required to evaluate a putative arranger's liability.

Background on CERCLA Arranger Liability

Section 107(a) of CERCLA imposes liability for the response and cost of cleaning up environmental contamination by hazardous substances on four classes of potentially responsible parties, one of which is "arrangers." 42 U.S.C. § 9607(a). CERCLA defines an "arranger" as follows:

any person who by contract, agreement or otherwise arranged for disposal or treatment, or arranged with a transport for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances.42 U.S.C. § 9607(a)(3). CERCLA, however, does not define the term "arrange."

The Supreme Court in Burlington Northern clarified what it means to "arrange for disposal." In short, a party must "take[] intentional steps to dispose of a hazardous substance" to be liable as an arranger. The Court provided some guidance on the type of evidence that could satisfy the intent element for purposes of arranger liability. For example, a party's knowledge that its product will be spilled by others may constitute evidence of that party's intent to dispose, but knowledge, without more, is insufficient to prove the necessary mens rea. Moreover, "CERCLA liability would attach . . . if an entity were to enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance," but "an entity could not be held liable as an arranger merely for 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." Most cases, including Georgia Power, fall between the latter two extremes and demand a fact-intensive inquiry.

The Fourth Circuit's Decision in Georgia Power

The Facts

Georgia Power Company ("Georgia Power"), an electric utility, used electrical transformers to generate electricity. When it stopped using transformers, Georgia Power inspected them, tested them for PCBs, and discarded transformers that were...