Dry Cleaning Franchisor Tagged With Cleanup Costs

No longer the loneliest man in town, Maytag Corporation (“Maytag”) has been successfully targeted in three separate states to pay cleanup costs at dry cleaning sites. Maytag is a successor to Norge Corporation, a manufacturer and franchisor of dry cleaning equipment. In Alaska, California, and Texas, courts have ruled that Maytag may be potentially liable for cleaning up perchlorethylene (“PCE”) contamination on the theory that its predecessor Norge “arranged for disposal” of PCE-containing wastewater.

In the Alaska case, Berg v. Popham, plaintiffs alleged that Norge’s dry cleaning machines discharged PCE through a poorly designed drainage system into groundwater. 307 F.3d 1028 (9th Cir. 2005). Plaintiffs brought their case under Alaska’s state Superfund law. Maytag argued that it could not be held liable for merely selling dry cleaning machines. It quoted City of Merced v. Fields, 997 F.Supp. 1326, 1332 (E.D. Cal. 1998), in which the court stated that “the Ninth Circuit has held that a manufacturer who does nothing more than sell a useful, albeit hazardous product to an end user has…[not] arranged for the disposal of hazardous waste for the purposes of 42 U.S.C. §9607(a),” (citing 3550 Stevens Creek Assocs. v. Barclays Bank, 915 F.2d 1335, 1361-62 (9th Cir. 1990) (holding that a seller of asbestos for building construction is not a liable party under CERCLA).

The Bergs, however, successfully argued that, under Alaska’s state Superfund law, liability could be extended to Maytag as a result of its actions as a franchisor. Plaintiffs argued that Maytag had done more than sell a machine. It instructed its franchisees on how to dispose of wastewater and designed and installed the system. The Ninth Circuit certified the state law question to the Alaska Supreme Court, which ruled, on May 20, 2005, that Maytag could be held liable as an arranger for disposal, because a party only had to have some “actual involvement in a decision to dispose of waste” in order to be held responsible in Alaska as a liable party under that state’s Superfund law. Berg v. Popham, 113 P.3d 604, 610 (Alaska, 2005) (“Berg”). The Alaska Supreme Court concluded that Alaska’s Superfund statute was intentionally crafted to be broader than the CERCLA statute. Berg, 113 P.3d at 609. It further concluded that “actual involvement in a decision to dispose of waste can…include actions such as designing, installing or connecting a system that disposes of waste on behalf of a third party.” Id. at 610.

The Berg case in Alaska was, as noted, decided under state law. The other two recent decisions in which Maytag has been held responsible as an “arranger” were decided under the federal CERCLA statute. The California case, California Dept. of Toxic Substances Control v. Payless Cleaners, 368 F.Supp.2d 1069 (E.D. Cal. 2005) (“Payless Cleaners”), involved a similar fact pattern to the Berg case. Maytag moved for summary judgment citing to the same Ninth Circuit cases relied upon in Berg, arguing that it was exempt from liability as a manufacturer of a useful product. Id. at 1077. The federal District Court, however, held that Maytag was more than a manufacturer having franchised dry cleaning shops, and offering not only products but training and services. Specifically, plaintiffs offered evidence that Maytag controlled the waste disposal decisions of its franchisees by designing and providing instructions about its equipment, by telling the plaintiffs where to put their equipment and disposal drains, and by physically installing the dry cleaning machines. Id. at 1080.

In the third case involving the same manufacturer/franchisor, Vine Street LLC v. Keeling, 361 F.Supp.2d 600 (E.D. Tex. 2005) (“Vine Street”), a federal District Court in Texas held the plaintiff had provided sufficient evidence that Maytag’s predecessor, Norge, had exerted control over its waste disposal practices and that Maytag could be held liable under both CERCLA and Texas state law. The Vine Street case included evidence that Norge had instructed franchisees to dispose of PCE–containing wastewater directly into the public sewer. Id. at 606.

Some commentators are clearly troubled that the three Maytag cases represent an erosion of well-settled law that protects parties that sell a useful product from being swept up in Superfund litigation. “One could almost make the argument that auto manufacturers are liable for air pollution under this standard,” said one Maytag attorney. Volume 20 Toxics Law Reporter, 339 (March 31, 2005). The basis of liability for Maytag in these cases, however, is not its role as a manufacturer, but as a franchisor. There was evidence in each of the three cases that Maytag’s predecessor, Norge, ran its franchise operation in a way that established control over the disposal practices of its franchise operators. In all three cases, it was the fact that the franchise owner not only sold the dry cleaning equipment, but installed it, and directed its franchisees on how to dispose of waste from the unit, which resulted in rulings against Maytag. In these rulings, the court found that the company “arranged for disposal” within the meaning of federal and state Superfund laws.

Given the number of franchise-type operations that Maytag and other manufacturers have operated in the United States, the precedent established by these three cases clearly spells trouble for those franchisors. One can reasonably expect that parties involved in cleaning up dry cleaning sites will routinely ask whether they have a cause of action against a franchisor of dry cleaning establishments.

For more information, please contact Brad Marten.