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District Court Applies BNSF Arranger Liability Test, Dismisses CERCLA Claim Against Dry Cleaning Machine Manufacturers

April 1, 2010

The Eastern District of California recently ruled that manufacturers of dry cleaning equipment specifically designed to discharge PCE-bearing wastewater into open drains are not “arrangers” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).[1] The decision in Hinds Investments v. Team Enterprises[2] is one of the first to specifically apply the arranger liability test set forth in the Supreme Court’s landmark BNSF decision.[3] Although other courts have found BNSF to require a fact-intensive examination of an “arranger” defendant’s intent to dispose,[4] the Hinds court dismissed the plaintiffs’ claims as matter of law.

Background: CERCLA Arranger Liability, the Ninth Circuit and Dry Cleaning

CERCLA imposes liability on, among others, “any person who by contract, agreement, or otherwise, arranged for disposal or treatment ... of hazardous substances.”[5] This provision of the statute is most often cited to impose liability on “direct” arrangers – parties that contract, for example with a hauler, to dispose of hazardous waste. But the Ninth Circuit and other courts have also imposed “arranger” liability where disposal of hazardous substances “is a foreseeable byproduct of, but not the purpose of, [a] transaction.”[6]

Disposal of hazardous substances might be argued to be the “foreseeable byproduct” of any number of pre-disposal transactions, and so these courts have generally balanced their broad definition of arranger liability with the “useful product” doctrine. Courts have “refused to hold manufacturers liable as arrangers for selling a useful product containing or generating hazardous substances that later were disposed of.”[7]

Like the Hinds case, United States. v. Burlington Northern & Sante Fe Railway Co. originated in the Eastern District of California, and involved (in part) arranger liability. On appeal, the Ninth Circuit ruled that Shell Oil, a manufacturer of agricultural chemicals delivered FOB destination to an agricultural operation and eventually spilled, was liable as an arranger even though the company’s intent was to sell its product, not dispose of it. The Ninth Circuit concluded in holding Shell liable that spillage of the chemicals was a foreseeable result of the sale. This ruling appeared to do away with any requirement that an arranger intend to arrange for disposal of hazardous substances.[8]

Shortly after the Ninth Circuit’s BNSF ruling, the Eastern District of California decided U.S. v. Lyon, applying the Ninth Circuit’s BNSF reasoning and refusing to dismiss a case against manufacturers of dry cleaning chemicals, even where the manufacturer had no contact with, knowledge of or control over the end-users of the product.[9] Several prior decisions had broadened the scope of liability at dry cleaning sites to include equipment manufacturers and franchise operators, but these cases had largely turned on the level of control and involvement in the day-to-day-operation of the dry cleaning business.[10] The chemical manufacturer decisions – the Ninth Circuit in BNSF and the Eastern District of California in Lyon – seemed to eliminate intent and control from the liability calculus.

Then, the Supreme Court reversed the Ninth Circuit’s BNSF ruling.[11] As explained below, the Supreme Court’s decision contained strong language regarding the necessary intent for arranger liability. In Hinds Investment, the Eastern District of California turned once again to the question of arranger liability in the dry cleaning context, but this time in light of the Supreme Court’s decision.

The Hinds Investment Decision

The Hinds plaintiffs, who were former and current owners of properties leased to dry cleaners between 1974 and 2000, alleged that the instruction manual to the Multimatic Solo Plus 35 dry cleaning machine instructed operators that PCE-contaminated wastewater “must flow into an open drain.” The plaintiffs argued that this and other similar instructions evidenced the manufacturers’ “conscious decision” to discharge PCE-contaminated wastewater, which was tantamount to an intent to dispose. As a result, the Multimatic was alleged to be both “a dry cleaning machine and a waste disposal machine,”[12] beyond the protection of the useful product doctrine.[13] The defendant manufacturers moved to dismiss the complaint for failing to state a claim, meaning the plaintiffs’ version of the facts were generally taken as true.[14]

The Intent Question – After BNSF

The district court’s analysis begins with several quotes from the Supreme Court’s BNSF decision on the question of intent: “under the plain language of [CERCLA], an entity may qualify as an arranger … when it takes intentional steps to dispose of a hazardous substance.” “Knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal. … [A manufacturer] must have entered into the sale of [its product] with the intention that at least a portion of the product be disposed of … .”[15] The district court left no doubt that it read these statements as a requirement that arrangers intend to dispose before they can be liable.

The Hinds plaintiffs responded by arguing that the Multimatic manufacturer had taken “intentional steps” to dispose of chemicals, because the manufacturers’ design and instructions for use of the dry cleaning machine demonstrated the intent that PCE “be disposed of” into a drain, through a sewer, and ultimately into the environment.[16] Intent, plaintiffs argued, could be inferred from design.

The district court rejected this argument, returning to the traditional evidence of intent in these cases: authority and control over disposal. The district court reasoned that CERCLA holds responsible those parties who arrange for disposal of hazardous substances “owned or possessed by such person.”[17] Requisite “possession” had been established in the past by proof of actual control over and involvement in the specific method and manner of chemical disposal, such as had been exerted by dry cleaning franchisors over their franchisees.[18] The Hinds plaintiffs, on the other hand, had only alleged at best the manufacturers’ “knowledge of likely disposal” of PCE. This, the court concluded, was expressly inadequate under BNSF.

The Useful Product Doctrine

Having concluded that the plaintiffs’ action did not adequately plead intent, the district court turned to precedent exonerating dry cleaning equipment and chemical manufacturers from CERCLA liability under the useful product doctrine,[19] to reject the plaintiffs’ theory that the Multimatic was a “waste disposal machine.”

The district court considered the “transaction at issue” to be “the sale of the Multimatic machine, an event which neither produces nor involves hazardous substances directly.”[20] The court faulted the complaint for failing to allege that the machine itself was a hazardous substance, or “any facts supporting a finding that a substantial part of [the] sale of the dry cleaning machines involved the arrangement for the disposal of waste water.”[21]

The plaintiffs, citing a 2005 Ninth Circuit decision holding dry cleaning equipment manufacturer liable under the Alaska state superfund law,[22] argued that contrary precedent was “no longer good law.”[23] The court rejected this argument, noting that, to the contrary, the Alaska case was “decided prior to the U.S. Supreme Court’s BNSF decision,”[24] and BNSF ultimately controlled.

Conclusion

The Hinds decision is the first post-BNSF decision to reject an arranger claim as a matter of law on the pleadings. It requires an “intentional step” towards disposal, something more than knowledge or foreseeability, suggesting that some of the more creative theories that both the government and private plaintiffs have used to assert liability under CERCLA are set to be hung out to dry.

For more information on CERCLA or this case, contact any member of Marten Law’s Waste Cleanup practice.

[1] 42 U.S.C. § 9601 et seq.

[2] Hinds Inv. v. Team Enter., No. CV F 07-0703, 2010 WL 922416 (E.D. Cal. Mar. 12, 2010).

[3] Burlington N. & Santa Fe Ry. Co. v. United States, 129 S.Ct. 1870 (2009).

[4] See Appleton Papers Inc. v. George A. Whiting Paper Co., Slip Op., 2009 WL 5064049 (E.D. Wis., Dec. 16, 2009) (summary judgment); U.S. v. Washington State Dept. of Transp., 665 F. Supp. 2d 1233, 1242 (W.D. Wash. 2009) (denying judgment on pleadings due to factual nature of inquiry); Frontier Communications Corp. v. Barrett Paving Materials, Inc., 631 F. Supp. 2d 110 (D.Me. 2009) (denying motion to dismiss due to fact-intensive inquiry). For a detailed discussion of these cases, see B. Marten, Has the BNSF Case Changed the Superfund Practice?, Marten Law Environmental News (Jan. 28, 2010).

[5] The full text is:

Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section— … (3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter 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. . . shall be liable for—(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan; (B) any other necessary costs of response incurred by any other person consistent with the national contingency plan; (C) damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction, or loss resulting from such a release; and (D) the costs of any health assessment or health effects study carried out under section 9604 (i) of this title.

42 U.S.C. § 9607(a).

[6] United States v. Shell Oil Co., 294 F.3d 1045, 1054-55 (9th Cir. 2002). For a more detailed explanation of CERCLA arranger liability, see J. Ferrell, Ninth Circuit Limits Useful Product Exception to Arranger Liability Under CERCLA, Marten Law Environmental News (Jan. 2, 2008).

[7] United States v. Burlington N. & Santa Fe Ry. Co., 502 F.3d 781, 808 (9th Cir. 2007).

[8] See Supreme Court Set to Review Joint and Several Liability and Arranger Liability Standards, Marten Law Environmental News (Feb. 19, 2009).

[9] See M. MacCurdy, “Useful Product” Exception Rejected and CERCLA Claim Against Chemical Manufacturer Is Allowed to Proceed, Marten Law Environmental News (Jan. 23, 2008).

[10] See, e.g., Cal. Dep’t of Toxic Substances Control v. Payless Cleaners, 368 F. Supp. 2d 1069 (E.D. Cal. 2005); Adobe Lumber, Inc. v. Hellman, 415 F. Supp. 2d 1070 (E.D. Cal. 2006) vacated on other grounds sub nom. Kotrous v. Goss-Jewett Co., 523 F.3d 924, 934 (9th Cir. 2008); Vine Street LLC v. Keeling, 361 F. Supp. 2d 600 (E.D. Tex. 2005). See also B. Marten, Dry Cleaning Franchisor Tagged With Cleanup Costs, Marten Law Environmental News (Nov. 2, 2005).

[11] See B. Marten, U.S. Supreme Court Holds That Superfund Liability Is Not Joint and Several Where A Reasonable Basis for Apportionment Exists; Court Also Narrows Arranger Liability, Marten Law Environmental News (May 4, 2009).

[12] 2010 WL 922416, *1-*2.

[13] Plaintiffs also brought claims under the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq., and California hazardous waste and tort law. These were dismissed together with the CERCLA claims.

[14] The district court cited the Supreme Court’s recent restatement of the Rule 12(b)(6) standard in Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (a complaint must “state a claim to relief that is plausible on its face. … A claim has facial plausibility where the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. … The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.”)

[15] Hinds, 2010 WL 922416, *5, quoting BNSF, 129 S.Ct. at 1879 (emphasis added).

[16] Id.

[17] 42 U.S.C. § 9607(a)(3) (emphasis added).

[18] Hinds, 2010 WL 922416, *6, citing Vine Street, 406 F. Supp. 2d at 752.

[19] Id.at *7, citing Payless Cleaners, Adobe Lumber.

[20] Id. at *8.

[21] Id., quoting California Dept. of Toxic Substances Control v. Pay-less Cleaners, 368 F. Supp. 2d 1069, 1078 (E.D.Cal.2005).

[22] Berg v. Popham, 307 F.3d 1028 (9th Cir. 2005).

[23] Hinds, 2010 WL 922416, *8.

[24] Id.

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