Ninth Circuit Gives Narrow Construction to “Arranger” Liability Under CERCLA

This week, the Ninth Circuit issued its first “arranger” liability decision under CERCLA since being reversed by the Supreme Court in the 2009 Burlington Northern opinion.[1] In Team Enterprises, LLC v. Western Investment Real Estate Trust,[2] the Ninth Circuit held that a manufacturer of equipment used to recycle wastewater from dry cleaning machines, as a matter of law, had neither the intent nor the control necessary to be held liable as an arranger. In its opinion, the court addressed and rejected several arguments that the plaintiff advanced to support its claim to recoup its cleanup costs at its dry cleaning site in California. The court held that, to sustain an arranger claim against a “company selling a product that uses and/or generates a hazardous substance as part of its operation,” the plaintiff must prove “that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.”[3] This case is the second federal appellate decision interpreting arranger liability after Burlington Northern, and contains one of the lengthiest analyses of the issues from any lower court so far.

Factual and Procedural Background

Team Enterprises involved contaminated property surrounding a shopping center in Modesto, California. Team Enterprises LLC (“Team”) leased space in the shopping center and operated a dry cleaning store beginning in 1980. For over twenty years, Team used perchlorethylene (“PCE”) in the dry cleaning machines for the cleaning process, a common practice, and generated wastewater containing PCE. Team also used Puritan Rescue 800 filter-and-still combination equipment that the defendant, R.R. Street & Co., Inc. (“Street”), designed and manufactured. The Puritan Rescue 800 returned distilled PCE to the dry cleaning machines and deposited the remaining PCE-laden wastewater into a bucket. Team disposed of the wastewater into a sewer, which leaked PCE into the ground.

After incurring cleanup costs for the site, Team sued Street under CERCLA and common law, alleging in part that Street arranged for disposal of PCE at the facility, because it took intentional steps to plan for and control disposal of PCE at the facility. The district court disagreed and granted Street’s motion for summary judgment, holding that Street sold a useful product to Team and that Team failed to present evidence that Street intended a disposal of hazardous wastes into the environment.

Ninth Circuit Decision

On appeal, Team presented two distinct theories of Street’s liability as an arranger: (1) that Street took “intentional steps” and “planned a disposal” of PCE; and (2) that Street had “authority to control and exercised control over the disposal process.”[4] The Ninth Circuit affirmed the district court’s grant of summary judgment in favor of Street, holding that Team failed to present evidence to support either theory.

“Intent” Theory

The court began its analysis of Team’s “intent” theory by paraphrasing Burlington Northern as follows: “While actions taken with the intent to dispose of a hazardous substance are sufficient for arranger liability, actions taken with the mere knowledge of such future disposal are not.”[5] The court also set out a conceptual framework for its analysis within the useful product doctrine, stating that the doctrine “serves as a convenient proxy for the intent element because of the general presumption that persons selling useful products do so for legitimate business purposes.”[6] The court continued:

It would be odd, for example, to say that an auto parts store sells motor oil to car owners for the purpose of disposing of hazardous waste. Conversely, persons selling or otherwise arranging for the transfer of hazardous waste (which no longer serves any useful purpose) are more likely trying to avoid incurring liability that might attach were they to dispose of the hazardous waste themselves. In other words, the probable purpose for entering into such a transaction is to dispose of hazardous waste.[7]

Team presented two primary arguments in support of its theory that Street intended to dispose of PCE at the site. First, Team argued that intent could be inferred, because Street designed the equipment “in such a way as to render disposal inevitable” – Team allegedly had no other choice but to pour the wastewater down the drain.[8] The court disagreed, noting that the design indicated, at most, that Street “was indifferent to the possibility that Team would pour PCE down the drain.”[9]

Second, Team argued that Street’s intent could be inferred from its failure to warn Team about the risk of contamination from improper disposal. The court rejected this argument, holding that a failure to warn theory of CERCLA liability would stretch the statute too far, e.g., by creating a “viable CERCLA claim against an auto manufacturer that failed to warn purchasers that motor oil must be disposed of properly once it has outlived its usefulness.”[10] The court noted that “[c]ountless other manufacturers would also be subject to arranger liability under Team’s novel theory,” and was “unpersuaded that CERCLA liability extends so far.”[11] The court continued: “While a manufacturer who fails to warn the buyer about a product’s inherent risk might be subject to a products-liability claim, we are not convinced that sellers of useful products must instruct buyers on proper disposal techniques in order to avoid CERCLA liability.”[12]

The court summarized its disposition of the “intent” theory as follows:

[T]o satisfy the intent requirement, a company selling a product that uses and/or generates a hazardous substance as part of its operation may not be held liable as an arranger under CERCLA unless the plaintiff proves that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.[13]

“Control” Theory

The court also rejected Team’s “control” theory, holding that none of the evidence that Team presented showed that Street “exercised control over the disposal process” at the dry cleaning facility.[14] First, Team alleged that Street “controlled” the disposal by designing the equipment in a manner that required the dry cleaner to dispose of the PCE-laden wastewater in the sewer. The court rejected this argument, pointing out that not even the Burlington Northern facts, where the manufacturer’s storage requirements led to eventual leaking of the product, were sufficient to constitute arranger liability.

Second, Team relied on Street’s instruction manuals directing dry cleaners to pour wastewater into a bucket, alleging that it had no practical choice (due to cost concerns) other than to pour the contents of the bucket into the drain. According to the court, the instruction manuals merely presented “recommendations,” not directives, and, “without evidence that Street exercised actual control over Team’s disposal, the options (or lack thereof) available to Team [were] irrelevant for purposes of arranger liability.”[15]

Finally, Team relied on Street’s internal memorandum showing that Street knew that dry cleaners disposed of PCE-laden wastewater in the floor drains. The court dismissed this evidence without discussion, suggesting that the company’s mere knowledge was irrelevant to the issue of control. Team also alleged that Street’s employees dumped PCE down the drain in Team’s stores, but the court found this evidence unreliable.

Team also sued the manufacturer of the dry cleaning machines under similar theories of liability. The court dismissed those claims in a memorandum disposition filed concurrently with the Team Enterprises decision, citing to its opinion. See Team Enters., LLC v. Multimatic Corp., No. 10-16486 (July 26, 2011). We have written about the district court decisions involving this and related cases in previous editions of our newsletter. See M. MacCurdy, Superfund Liability Update: A Summary of Cases Decided in 2010 Construing the Supreme Court’s BNSF Decision, Marten Law Environmental News (Nov. 4, 2010); A. Orford, District Court Applies BNSF Arranger Liability Test, Dismisses CERCLA Claim Against Dry Cleaning Machine Manufacturers, Marten Law Environmental News (Apr. 1, 2010).

For more information, please contact Meline MacCurdy or any member of Marten Law’s Environmental Litigation or Waste Cleanup practice groups.