On May 4, 2020, the Third Circuit issued a precedential opinion affirming the United States District Court for the District of New Jersey’s decision that the United States Government (the “Government”) is not liable as an operator under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for its involvement at a chromite ore processing plant in New Jersey during World Wars I and II. PPG Indus. Inc. v. United States, No. 19-1165, slip op. (3d Cir. May 4, 2020). The decision clarifies the applicable standard for parties seeking to hold the Government liable as an operator for cleanup costs at contaminated former defense sites.

Starting in 1915, Natural Products Refining Corporation (“NPRC”) operated a chemical plant in New Jersey where it turned chromite ore into chromium chemicals. Id. at 3. The manufacturing process generated hazardous chemical waste that was stockpiled outdoors, and eventually caused hazardous substances to seep into the soil and groundwater. Id. at 4. During World Wars I and II the Government regulated the production of chromite chemicals. Id. It was during World War II, however, that the Government designated chromium chemicals as “critical” war materials and implemented various controls on price, labor, and production and control subsidies. Id. at 4-7. In 1954, PPG Industries, Inc. (“PPG”) purchased the site from NPRC and processed chromium chemicals there until 1963. Id. at 7. PPG used many of the same processes as NPRC, such as stockpiling waste outdoors. Id. PPG has spent an estimated $367 million to remediate the site and other areas contaminated by the waste produced at the plant. Id.

PPG sued the Government in 2012 under Section 107(a) of CERCLA, seeking recovery and contribution for costs associated with past and future cleanup efforts. Id. In 2018, PPG and the Government cross-moved for summary judgment and the United States District Court for the District of New Jersey granted the Government’s motion on the basis that the Government was not liable as an operator under CERLCA. Id. A more in-depth discussion of the District Court’s opinion can be found here.

On appeal, the question before the Third Circuit was “whether the Government exercised the requisite control over pollution-related operations at PPG’s property at the time hazardous substances were released. . .” Id. at 3. PPG asserted that the District Court erred in applying the wrong legal standard for past operator liability under Section 107(a)(2) of CERCLA and in finding that the Government was not a past operator of the site. Id. at 8.

First, the Third Circuit addressed the applicable legal standard to determine if the Government is subject to operator liability under CERCLA. Id. PPG argued that the Third Circuit should apply the standard in FMC Corp. v. United States Department of Commerce, 29 F.3d 833 (3d Cir. 1994), which imposes operator liability when the government had “substantial control” over the facility and “active involvement” of the activities there, rather than the standard developed by the Supreme Court in United States v. Bestfoods, 524 U.S. 51 (1998). Id. at 14 (quoting FMC, 29 F.3d at 843). Under the Bestfoods standard, the determination of whether an entity is liable as an operator under CERCLA is “based on the relationship between the potentially responsible party and the waste-producing facility at issue.” Id. at 12. PPG contended that the Bestfoods standard was inappropriate because the case did not address whether and under what circumstances the government can be held liable as an operator. Id. at 14. The Third Circuit found this distinction to be irrelevant, explaining that

[a]t no point, regardless of how the test was formulated, has any court said that the test for determining operator liability should be different depending on whether the potentially responsible party is the government, a parent, or subsidiary, or some other type of corporation. Thus, the Bestfoods operator definition is not limited to the parent-subsidiary context and applies when the question is whether the government can be held liable as an operator.

Id. at 15 (internal citations omitted).

PPG alternatively argued that even if the Bestfoods standard applied, the operator definition in Bestfoods should not be narrowly interpreted to include only employees “directly working with, or making low-level decisions about, hazardous waste.” Id. at 16. In Bestfoods, the Supreme Court found that CERCLA’s definition of “operator” was lacking in specificity and thus applied the word’s ordinary meaning, which the court found to be “‘[t]o conduct the affairs of; manage: operate a business.’” Id. at 12 (quoting Bestfoods, 524 U.S. at 66 (emphasis added)). PPG asserted that the term “operator,” under that definition, must be broadly read to encompass persons having general control over a facility, and not just those individuals directly working with or making decisions about hazardous waste. Id. at 16. The Third Circuit disagreed, explaining that Bestfoods clarified that operator liability only extends to those who “‘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.’” Id. (quoting Bestfoods, 524 U.S. at 66-67 (emphasis added)). Moreover, the Third Circuit emphasized that, “operator liability requires something more than general control over an industry or facility—it requires some indicia of control over the facility’s polluting activities. Thus, the language the Supreme Court used in Bestfoods suggests that operator liability requires something more than general wartime control over an industry.” Id.

Accordingly, the Third Circuit decided that the Bestfoods standard applies for operator liability even when the liability of a government entity is at issue. Id. The Court clarified that under the Bestfoods standard, PPG must show that the alleged operation must exercise control over operations related to the leakage or disposal of hazardous waste or decisions about compliance with environmental regulations to succeed on its claim that the Government operated the site. Id. at 16-17.

Applying the Bestfoods standard and operator definition, the Third Circuit held that the District Court did not err in finding that the Government “never directly managed, directed, or conducted NPRC’s operations specifically related to pollution.” Id. at 17. Although the Third Circuit agreed with PPG that the government was involved in aspects of production at the plant during World War II, PPG failed to present evidence that the Government specifically controlled operations related to pollution. For example, PPG did not present any evidence to suggest that the Government was involved with or responsible for the practice of stockpiling waste outdoors which caused the contamination. To the contrary, this was the practice at the site both before and after the World Wars. The Third Circuit held that “[t]he District Court correctly found that the Government’s actions in relation to NPRC’s plant were consistent with general wartime influence over an industry—not control over NPRC’s pollution-related activities,” and, therefore, the Government was not an “operator” under CERCLA. Id. at 21.

The Court then distinguished FMC, explaining that the case at bar and FMC were not as factually similar as PPG implied. Specifically, the court noted the “[t]he government in FMC was involved not only in operations at the facility in a general sense, it was specifically involved with waste production and regulation.” Id. The Third Circuit identified four significant factual differences between FMC and the case at bar, as the government in FMC “(1) built and retained ownership of new facilities new the plant; (2) had a representative on site; (3) ordered the facility to produce a different product; and (4) supplied employees to install equipment.” Id. Thus, in FMC the government “effectively seized total control of the plant’s operations by requiring the manufacturer to convert its plant to produce a different product and stepping in to help achieve this goal, which included involvement in waste disposal.” Id. at 21-22. Rather, at the NPRC site, NPRC produced chromium before and after the World Wars, there was no government representative on site, and the Government was less involved in labor decisions and not involved at all in waste disposal decisions. Id. at 22. Unlike in FMC, the Government did not exert day-to-day control over the NPRC plant. Id. at 22-23. Accordingly, the Third Circuit affirmed the District Court’s denial of PPG’s motion for summary judgment and grant of the Government’s motion or summary judgment.

The Third Circuit’s decision clarifies that parties seeking to hold the government liable under CERCLA as an operator must have evidence that the government exercised control over operations related to the contamination at issue. Merely asserting that the government generally exerted its influence during wartime will be insufficient to bring a successful claim under CERCLA. This may prove challenging as time passes and records regarding the government’s involvement at contaminated defense sites become more difficult to track down. It is unclear at this time whether PPG will appeal the Third Circuit’s decision to the Supreme Court.