The decision sets a high bar for proving intent to dispose of hazardous substances and may make it easier for a party alleged to be liable as an arranger under CERCLA to secure summary judgment.
In a closely watched case, the US Court of Appeals for the Fourth Circuit recently held in a 2 to 1 decision that Georgia Power was not liable as an “arranger” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as a result of its sale of used transformers that contained hazardous substances. Consolidation Coal Co. v. Ga. Power Co., No. 13-1603 (4th Cir. Mar. 20, 2015). The majority reasoned that, despite Georgia Power’s references to the transformer sales as the “disposal” and “scrapping” of used transformers, the plaintiffs had failed to present evidence that established a genuine issue of material fact indicating that Georgia Power intended to dispose of hazardous substances when it sold the transformers to a recycler.
In the 1980s, Georgia Power sold used electrical transformers that contained polychlorinated biphenyls (PCBs) to Ward Transformer Company (Ward), which repaired and resold the transformers to third parties. In the process of repairing the transformers, Ward released PCBs into the environment. In the early 2000s, the Environmental Protection Agency initiated a removal action at the Ward site and required various companies, including Consolidation Coal, to bear the cost of the removal action. These companies subsequently filed a CERCLA contribution claim against Georgia Power, alleging that Georgia Power was liable for the removal costs because of its sale of transformers to Ward. Specifically, the plaintiffs alleged that Georgia Power was liable because it “arranged” for the disposal of PCBs in the transformers through its sale of the used transformers to Ward. After the close of discovery, Georgia Power moved for summary judgment, which the district court granted, holding that Georgia Power lacked the requisite intent to be held liable as an arranger under CERCLA. The plaintiffs appealed.
The Fourth Circuit’s Decision
The two-judge majority applied the framework outlined in Burlington Northern and Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009), and Pneumo Abex Corp. v. High Point, Thomasville & Denton Railroad Co., 142 F.3d 769 (4th Cir. 1998), to analyze whether Georgia Power intended to dispose of hazardous substances. The court began by determining that documents referring to the transformer sales as “scrapping” and “disposal” were insufficient to establish that Georgia Power’s goal was disposal. The court relied in part on other documents suggesting that Georgia Power used those terms to mean that the transformers were “actually sold.” The court ultimately concluded that the terminology Georgia Power used to describe the transformer sales was not dispositive in determining its intent.
Finding no direct evidence of whether Georgia Power intended to dispose of the transformers, the court analyzed the four factors identified in Pneumo Abex: “(1) the intent of the parties as to whether the materials were to be reused entirely or reclaimed and then reused, (2) the value of the materials sold, (3) the usefulness of the materials in the condition in which they were sold, and (4) the state of the product at the time of the transferal.”
Under the first factor, the court found that Ward intended to reuse the transformers as much as possible rather than sell them for scrap or dispose of them. The court considered Ward’s removal of the PCB-laden oil from the transformers before resale unimportant, as that was a decision made by Ward based on the specifications of third-party buyers. Under the second factor, the court noted that Georgia Power sold the transformers for more than scrap value and that Ward profited from its reprocessing operations. The court found no evidence that Georgia Power sold the transformers to Ward at a discount because of the presence of PCBs. Under the third factor, the court noted that the transformers were in a condition in which they could be refurbished and reused and that Georgia Power had even reused similar transformers itself in some instances. Finally, under the fourth factor, the court found that the transformers were in good condition at the time of the sale because there was no evidence that they were leaking or maintained in such a way that would necessarily lead to spills. Considering these factors together, the court determined that the plaintiffs had not presented a genuine issue of fact regarding Georgia Power’s intent to dispose of hazardous substances.
In dissent, Judge James Wynn took a markedly different view of the significance of Georgia Power’s use of the terms “scrapping” and “disposal.” Judge Wynn found that while courts should look “beyond the parties’ characterization” of a transaction, Georgia Power’s terminology was nonetheless important evidence of its intent. As part of applying the Pneumo Abex factors, Judge Wynn noted that many of the transformers were not in useful condition because they were filled with moisture and needed to be completely drained and repaired. He also found it significant that Georgia Power had experience repairing transformers and knew that such repairs were likely to result in spills of PCB-laden oil. Judge Wynn concluded that the case should not have been decided on summary judgment, finding that nothing in the case clearly established Georgia Power’s intent, which is “generally a question for the finder of fact.
The Fourth Circuit’s decision is notable not only for its construction of what constitutes evidence of intent to dispose of hazardous substances under CERCLA, but also for its conclusion that summary judgment was appropriate when the intent of a party, a question traditionally reserved for the trier of fact, was dispositive. As the dissent observed, the Sixth Circuit overruled a grant of summary judgment under similar circumstances in United States v. Cello-Foil Products., Inc., 100 F.3d 1227 (6th Cir. 1996). In that case, the Sixth Circuit found that the defendants might have returned solvent-filled drums to a solvent manufacturer with the intent to dispose of residual solvent, even if their primary goal was to recover a deposit for returning the drums. In contrast, while the majority in Consolidation Coal acknowledged that Georgia Power theoretically could have intended to dispose of PCBs in addition to its goal of recovering money for the transformers, it set a high bar for proving such secondary intent. Thus, the Consolidation Coal decision may make it easier for a party alleged to be liable as an arranger under CERCLA to secure summary judgment.