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US Held Liable for Cleanup Costs at Mining Site Leased to Private Operator

March 17, 2011

In a case with broad implications for hazardous-waste cleanups on federally owned lands, an Idaho federal district court recently held that the U.S. Government had both arranger and operator liability under CERCLA at a site leased to a mining company. Nu-West Mining Inc. v. United States.[1] The court concluded that the Government’s permitting, inspection, and oversight functions at four mines located in the Caribou-Targhee National Forest in Idaho exposed it to CERCLA liability, and rejected the Government’s argument that it was acting in a merely “regulatory” capacity. The decision potentially gives the US Government – the largest landowner in the country – a share of cleanup costs on leased property throughout the nation.

CERCLA Background

Under CERCLA, a private party or the government may recover response costs arising from the release or threatened release of hazardous substances from four categories of persons, referred to as “potentially responsible parties,” or “PRPs.”[2] Two of these categories were at issue in the Nu-West case: “arrangers” and “operators.” CERCLA imposes liability on arrangers – or “any person who by contract, agreement, or otherwise, arranged for disposal or treatment … of hazardous substances,”[3] as well as current and former operators of contaminated facilities.[4]

In 2009, the U.S. Supreme Court clarified the scope of arranger liability in Burlington Northern and Santa Fe Railway Co. v. United States (“BNSF”).[5] In BNSF, plaintiffs sought to hold a chemical manufacturer who sold a product to a chemical mixing facility liable as an arranger. Although the manufacturer used a third party to transport the chemicals and sold a “useful product,” the manufacturer knew that significant leaks and spills occurred during the transfer of its product to storage on the site. The Ninth Circuit held the manufacturer liable on the theory that it arranged for disposal because it knew spills and leaks were inherent in the transfer process. The Supreme Court disagreed, explaining that an entity may only qualify as an arranger “when it takes intentional steps to dispose of a hazardous substance.”[6] The Court held that the manufacturer’s “mere knowledge” that spills would occur did not amount to an “intent” to dispose, and emphasized that arranger liability “requires a fact-intensive inquiry that looks beyond the parties’ characterization of the transaction as a ‘disposal’ or ‘sale’ and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability provisions.”[7]

Under CERCLA, an operator is circularly defined as “any person … operating [a] facility.”[8] Therefore, interpretation of CERCLA’s operator provisions hinges on the 1998 U.S. Supreme Court decision United States v. Bestfoods.[9] In Bestfoods, the Court held that, to be liable under CERCLA, an operator must “manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.”[10] Operator liability attaches if the defendant had authority to control the cause of the contamination at the time of disposal and actually exercised that control.[11]

Factual Background to the Nu-West Decision

Nu-West arose from selenium contamination at four phosphate mines in the Caribou-Targhee National Forest in Idaho. Beginning in the 1960s, the Government leased mineral rights in the National Forest to various mining companies. Under the twenty-year leases, the Government inspected the mines to monitor environmental conditions, ensure that waste rock was properly disposed, and validate royalty payments. The Government also issued special use permits for the construction of waste rock dumps adjacent to the mine sites.

One of the rock layers within the mines, known as the “middle waste shale,” contained selenium – a naturally occurring element. In an effort to promote re-vegetation, the Government required the companies to cover the waste rock dumps with middle waste shale. The selenium in this waste rock layer leached into the water flowing from beneath the piles, contaminating the site. The contamination was discovered in the 1990s, and Nu-West Mining, Inc. and Nu-West Industries, Inc. (“Nu-West”) incurred approximately $10 million to clean up the sites. Nu-West then filed an action under CERCLA to recover these costs from the Government.

The Court’s Decision

On Nu-West’s partial motion for summary judgment, the court held the Government liable under CERCLA as both an arranger and an operator for the contamination at the four mine sites.

Arranger Liability

The court began with BNSF: an arranger under CERCLA means “someone who ‘takes intentional steps to dispose of a hazardous substance.’”[12] Relying on pre-BNSF Ninth Circuit case law, the court refined the arranger definition to include only those entities that had “direct involvement in [the] arrangements” for waste disposal.[13] In this light, the court considered three elements to determine arranger liability – whether the Government: (1) owned the hazardous substance; (2) had the authority to control the disposal of that substance; and (3) exercised some actual control over the disposal of that substance.[14] The court held that the Government had satisfied all three elements.

The court easily disposed of the first two elements: the Government not only owned the source of the hazardous substance (the selenium within the middle waste shale), it also had the authority to control the disposal of mining waste at the dump sites – indeed, “no mining or waste disposal could occur without its approval.”[15] Looking to the third element, the court concluded that the Government had exercised actual control over the disposal (and “showed its intent that disposal take place”), by requiring the lessees to cover the waste dumps with the middle waste shale.[16] In support, the court pointed to the fact that the Government: (1) required lessees to obtain the Government’s approval for their mining, waste disposal, and reclamation plans; and (2) conditioned its approval of mining plans on requiring lessees to perform specific reclamation activities (including covering the waste dumps with a layer of middle waste shale to promote re-vegetation).

The court also rejected the Government’s argument that it should not be held liable because it was “acting in a purely regulatory role.”[17] The Government asserted that it did not have the requisite intent required under BNSF, since it was merely acting to “ensure that the Lessees complied with the law and the terms of their leases, permits, and mine plans that [the Lessees] entered into as a condition of mining on public land.”[18] “Regulatory oversight,” the Government argued, did not equate to “actual control” of the hazardous substances required under CERCLA.[19] Therefore, it could not have taken any “intentional steps to dispose of a hazardous substance” as BNSF requires.[20] Relying on a pre-BNSF Ninth Circuit decision – United States v. Shell Oil,[21] the court concluded that CERCLA’s broad waiver of sovereign immunity under 42 U.S.C. § 9620(a)(1) exposed the Government to liability even when acting in a regulatory role.[22] On these grounds, the court held the Government liable as an arranger for the mining contamination.

Operator Liability

Likewise, the court had no difficulty holding that the Government had also directly “manage[d], direct[ed], or conduct[ed] operations specifically related to pollution.”[23] “In this case, the record shows conclusively that the Government was managing the design and location of the waste dumps for the four mines.”[24] The court found that the Government participated in decisions regarding waste-dump design, regularly inspected the dumps to ensure compliance with the mining plans and waste disposal guidelines, and directed the lessees to take specific actions at the waste dumps.[25] The court held these actions sufficient as a matter of law to impose CERCLA operator liability on the United States.[26]

Conclusion

Nu-West suggests that, at least in certain circumstances, the Government’s permitting role on federal lands may give rise to operator and/or arranger liability under CERCLA.

For more information on the decision, contact any member of Marten Law’s Waste Cleanup practice group.

[1] Nu-West Mining Inc. v. United States (“Nu-West”), No. 09-431 (D. Idaho Mar. 4, 2011). All citations are to the slip opinion.

[2] 42 U.S.C. § 9607(a).

[3] 42 U.S.C. § 9607(a)(3) imposes liability on

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 ….

Id.

[4] See 42 U.S.C. § 9607(a)(1) (holding current operator of vessel or facility liable), (a)(2) (holding liable “any person who at the time of disposal of any hazardous substance … operated any facility at which such hazardous substances were disposed of”).

[5] 129 S. Ct. 1870 (2009).

[6] Id. at 1879.

[7] Id.

[8] 42 U.S.C. § 9601(20)(A)(ii).

[9] 524 U.S. 51, 118 S. Ct. 1876 (1998).

[10] Id. at 66-67.

[11] Nu-West, at 10 (quoting Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1341-42 (9th Cir. 1992)).

[12] Id. at 7 (quoting 129 S. Ct. at 1879).

[13] Id. (quoting United States v. Shell Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002)).

[14] Id. (quoting United States v. Shell Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002)).

[15] Id. at 8.

[16] Id.

[17] Id. at 9.

[18]Defendant United States’ Response to Plaintiffs’ Motion for Partial Summary Judgment on the Liability of the United States (Dec. 20, 2010), at 11.

[19] Id. at 12.

[20] Id. at 14 (quoting BNSF, 129 S. Ct. at 1879).

[21] 294 F.3d 1045 (9th Cir. 2002).

[22] Nu-West, at 9-10.

[23] Id. at 10 (quoting Bestfoods, 524 U.S. at 66-67).

[24] Id. at 11.

[25] Id. at 11-15.

[26] Id. at 13.

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