US Eighth Circuit Overturns Summary Judgment In Favor Of Government In CERCLA Arranger Liability Case Arising Out Of Sale Of Contaminated Buildings

Keywords: Summary Judgment, Government, CERCLA, Liability

If a defendant sells a product containing hazardous waste to a buyer that later disposes of the product, and if the product has commercial value and was part of a "legitimate sale," the defendant may avoid so-called "arranger liability" under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA")1,even if the seller knows that the buyer intends to dispose of the hazardous product. That was the holding in United States v. Dico, Inc.,2 in which the US Court of Appeals for the Eighth Circuit partly reversed summary judgment that had been entered in favor of the government and against defendant tire manufacturer Dico. The court also affirmed $1.6 million in civil damages based on Dico's inability to prove that it had sufficient cause for violating a related EPA order, but declined to impose punitive damages against Dico for its violation of that order.

Background

Several decades ago, the EPA identified polychlorinated biphenyls ("PCBs") in insulation adhesive in several buildings on Dico's property in Iowa. In 1994, the EPA issued an order requiring Dico to remove or otherwise encapsulate the contaminated insulation. Dico removed some of the insulation and encapsulated what remained. Dico had a continuing obligation under the 1994 order to inspect and maintain the encapsulated surfaces, as well as to notify the EPA of any change in site conditions. By 2002, Dico no longer occupied or used the buildings, and the EPA agreed that Dico could discontinue testing on the condition that DICO alert the EPA should the buildings come back into use.

In 2007, acting through an affiliate, Dico paid Southern Iowa Mechanical ("SIM") to remove parts of certain contaminated buildings and sold SIM several other buildings. After learning of the dismantling and sale, the EPA took the position that Dico was responsible for related cleanup costs. In addition, the EPA tracked insulated steel beams from the disassembled buildings to SIM's facility elsewhere in Iowa, where the beams were in direct contact with the ground. Samples from the surrounding soil confirmed that PCBs resided in the beams and had contaminated nearby soil at SIM's facility. The government subsequently incurred costs related to cleanup of the SIM site.

Arranger Liability

The government sued Dico for recovery of cleanup costs under Section 107(a)(3) of CERCLA, which creates liability for any person who "arranged for disposal or treatment . . . of hazardous substances owned or possessed by such person."3 The district court granted the government's motion for partial summary judgment on its claim that Dico was liable as an arranger of the disposal of hazardous waste.4

After a bench trial on damages, the district court imposed $1,620,000 in civil penalties - $10,000 for each of the 162 days the court deemed Dico to be in violation of the EPA Order - and punitive damages of $1,477,787.73.5 Dico then appealed.

Relying on the US Supreme Court's decision in Burlington Northern & Santa Fe Railway v...