Environmental Law Insight - Updates and Analysis from Taft's Environmental Trial Lawyers

Having represented environmental contractors accused of malpractice, I welcomed a recent federal court decision finding that an environmental contractor is not liable under RCRA simply because it hired a subcontractor that performed a wrongful act, even though the act resulted in the release of a hazardous waste into the environment.

In National Exchange Bank and Trust v. Petro-Chemical Systems, Inc., et al., 2012 WL 6020023 (E.D. Wisc. Dec. 3, 2012), a contractor, Petro-Chemical Systems, was hired to test the tightness of an underground fuel oil storage tank.  Petro-Chemical subcontracted this work to Tanknology, Inc.  Tanknology’s technician performed the test, which included disconnecting pipes to the furnace and reconnecting them.  An investigation showed that the piping from the tank was reconnected backwards, which the parties agreed led to a buildup of pressure that caused the seals on the pumps to fail.  Approximately 550 gallons of fuel oil spilled from the broken seals and entered into the basement.  Some of the fuel oil was suspected of having seeped into the soil below the basement.

I invite you to learn more about this decision by reading my recent blog post at Commonground.

Clients who buy or sell contaminated property always ask “will the indemnification clause in the asset purchase agreement protect me?”  Lawyers drafting such clauses often look to see how courts have interpreted similar provisions.  Recently, the U.S. Court of Appeals for the Sixth Circuit examined the retained liability and indemnification clauses in an asset purchase agreement governed by Ohio law in Textileather Corporation v. GenCorp Inc., __ F.3d __, 2012 WL 3932060 (6^th Cir. Sept. 11, 2012).  The Sixth Circuit concluded that the seller retained the liabilities for the environmental contamination (including CERCLA liabilities) and was legally obligated to pay the buyer for those liabilities under the indemnification clause. 

After a seven-day bench trial, the United States District Court for the Eastern District of Wisconsin upheld the CERCLA useful product defense.  Appleton Papers, Inc. and NCR Corporation v. George A. Whiting Paper Co., et al., Case No. 08-C-16 (E.D. Wis. July 6, 2012).  I previously wrote about the Ninth Circuit’s support of the useful product defense for the sale of dry cleaning equipment in Team Enterprises, LLC v. Western Investment Real Estate Trust, LLC, 647 F.3d 901 (9th Cir. 2011).

The Appleton Papers district court conducted a thorough analysis of the evidence to determine whether bales of paper (called “broke”) that are no longer useable by the paper manufacturer, yet contain residual PCBs, may be sold without triggering CERCLA arranger liability.  Answer: No liability.  The district court examined the U.S. Supreme Court’s decision in Burlington Northern and Santa Fe Ry. Co. v. United States,¹ and the Ninth Circuit’s decision in Team Enterprises, to reach the following conclusions (shown as bolded headings in the court’s original Conclusions of Law on Arranger Liability):

1. Knowledge Alone is Not Enough:  Although some employees may have known that the broke would be disposed of, and end up in the river subject to the CERCLA response action, knowledge alone was not enough to trigger “arranger” liability under CERCLA §107.  There must be more, namely, the intent to dispose of the broke in the river, and knowledge that the broke contained hazardous substances.  As the court succinctly put it: “Indifference is, at most, what occurred here.”  Slip Op. at 15.  The court used the example of scrap sales to demonstrate why there was no liability:

Suppose someone has scrap copper lying around, which is of no value to him but is valued by others.  To him it is scrap, but to others it is useful and therefore valuable.  When he sells the scrap to a dealer, he might have some general inkling that the copper could be used in wire or tubing or any number of other applications, but as far as he is concerned his purpose is simply to make a little money.  And, although he wants to get the scrap off of his property, there is nothing harmful or toxic about the scrap that would give him extra motivation to have it disposed of or to cause him to think about its final destination.  He is simply indifferent to the final destination of the copper.”  Slip Op. at 14-15.

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On January 4, 2012, we reported to you my view that the United States District Court for the Eastern District of Wisconsin “could not have been more wrong” in finding that an Asset Purchase Agreement (APA) imposed direct CERCLA liability on the purchaser.  The purchaser filed a motion for reconsideration of this summary judgment, and on April 10, 2012, the district court reversed itself, and dismissed all claims against the purchaser.  In so holding, the court held that the APA was not drafted “broadly enough to encompass [defendant’s] direct liability for the CERCLA liability at issue in this case.”  Slip Op. at p.2.  The court found that the present liability did not arise from any “violation” of law or any “compliance” issue.  The court rejected the argument of the Justice Department that the filing of a CERCLA lawsuit triggered the “violation” thereby causing defendant’s CERCLA liability under the APA.  The court was kind to the Justice Department in describing this position as “a wholly circular argument.”  United States of America v. NCR Corp. et al., Case No. 1:10-cv-00910-WCG (April 10, 2012)(doc. 349).

The filing of an amended consent decree to an old Superfund site recently caught the attention of environmental lawyers around the country because it added a vapor intrusion remedy to a decades-old site.  See Joint Stipulation to Amend Consent Decree (Dkt. 74), United States v. Intel Corp. and Raytheon Co., 91-CV-20275 (N.D.Calif. Filed Dec. 21, 2011). 

The site at issue is the Middlefield-Ellis Whisman (MEW) Superfund Study Area in Mountain View and Moffett Field, California, which was the subject of a 1992 consent decree.  During the 1960s and 1970s, several industrial companies manufacturing semiconductors, electronics, and other products released volatile organic compounds (VOCs) into the environment, primarily trichloroethylene (TCE), which later mixed with similar releases from nearby U.S. Navy and NASA contaminant sources. 

To read more about this matter, I invite you to read my recent blog post on Commonground.

On December 19, 2011, the United States District Court for the Eastern District of Wisconsin denied defendant Appleton Paper’s Motion for Summary Judgment that sought a determination that Appleton was not liable to the United States pursuant to the cost-recovery provisions of CERCLA Section 107(a).  Appleton had acquired certain assets from NCR under an asset purchase agreement (APA).  In what might be described as a chilling decision rightfully criticized as a fundamental misunderstanding by the court of CERCLA, the court held that CERCLA Section 107(a) (cost-recovery) could impose direct liability to the United States on a purchaser of assets (Appleton), even though the seller (NCR) continued in existence, because CERCLA strict liability under Section 107(a) is a “violation of law” as set forth in the APA.  The court’s holding is baffling: not only does Section 107(a) not speak to violations of law, but the court’s holding is contrary to the legislative history of CERCLA, and to those provisions of CERCLA that describe violations of law and their penalties.

I recently published an article about this case, which bears watching if appealed or cited with approval by other courts.

A federal district court dismissed a lender’s claims for negligent misrepresentation and strict products liability against two environmental engineering firms related to a brownfield redevelopment project involving an old landfill, but allowed other claims seeking damages in excess of $10 million to continue against the firms for CERCLA cost recovery, breach of contract, and negligence.

In Bancorpsouth Bank v. Environmental Operations, Inc., et al., Case No. 11-00009 (E.D. Mo. 10/11/11), Bancorp, as successor in interest to The Signature Bank, sued three environmental engineering firms hired to remediate property containing an old landfill. To read more about this case, I invite you to read my recent blog post on Commonground.

A federal district court recently granted a purchaser’s motion to dismiss a seller’s third party complaint demanding indemnification for over $841,000 of response costs incurred by U.S. EPA. 

In United States v. ARG Corporation, Case No. 10-311 (N.D. Ind. 2011), ARG owned an industrial site for 6 years, and then sold it to the City of South Bend.  Within days after the closing, the City notified U.S. EPA that it feared hazardous substances left on the property presented an imminent danger to public health.  The Government sued ARG under CERCLA for reimbursement of over $841,000 in response costs.  ARG filed a third party complaint against the City for indemnification based upon the City’s purchase agreement, claiming that the City was responsible to pay for the cleanup.  Neither party argued that the contract language was ambiguous, just that the language should be interpreted in their favor. 

The contract language at issue stated as follows:

The Seller shall remain solely financially responsible for the Remediation Activities arising from the Seller’s ownership, use or operation of the property prior to the Closing Date, provided however, that the Purchaser covenants not to execute against the Seller’s assets to satisfy the Seller’s financial responsibilities for remediation of pre-closing environmental damage except for the proceeds of recoveries under the general liability policies issued to the seller prior to closing.

The Purchaser shall be solely financially responsible for the Remediation Activities arising from the Purchaser’s ownership, use or operation of the property after the Closing Date.

The court explained that its goal was to ascertain the intent of the parties as determined by first looking to the plain and ordinary meaning of the contract language.  Clear and unambiguous language is given its plain and ordinary meaning.  So merely because the parties disagreed about how the language should be interpreted, did not create an ambiguity.

The court held that this language unambiguously stated that ARG was solely responsible for remediating hazardous substances on the property arising from ARG’s ownership, use, or operation prior to the closing, while the City was solely responsible for such activities after the closing. 

The court also held that the provision that the City would only seek recovery from ARG’s insurers did not mean that the City agreed to indemnify ARG if ARG was forced to pay the Government for remediating hazardous substances.

Finally, the Court held that ARG’s claim that the parties’ pre-contract negotiations that the City would fully pay for any remediation costs was irrelevant given the clear language in the contract and the contract’s merger provisions; i.e., the agreement embodies the entire agreement between the parties, it cannot be varied except by written agreement of the parties, and “no representation, promise, or inducement not included in this agreement shall be binding on the parties hereto.”   

The Second Circuit Court of Appeals recently affirmed dismissal of a RCRA citizens’ suit on the grounds that plaintiffs did not set forth the identity of the specific chemicals released by the defendant in plaintiffs’ notice of intent to sue. I invite you to read an article I wrote regarding this suit, Brod v. Omya, --- F.3d ---, 2011 WL 2750916 (C.A. 2, July 18, 2011 (Vt.)).

Tip #1:  Focus on your CERCLA site’s Five-Year Review one year before it is due.  This is the first article of a three-part series to help you better manage your Superfund site obligations from the perspective of an attorney who has served as Superfund common counsel for many years.  

As the federal Superfund program enters its third decade of implementation, the issues that you might see arise on older sites could be unexpected ones.  “Vapor intrusion” risks and “institutional controls” are terms that were likely not seriously invoked if your sites are over 10 years old (i.e., 10 years following the entry of the CERCLA Consent Decree governing your site).

Don’t put your sites on auto-pilot, particularly if you do not have an environmental attorney as a member of your site team.  CERCLA Five-Year Reviews may present new challenges that can be best addressed by your team in the year prior to the Five-Year Review Report due date.  For example:  1) submit FOIAs to collect relevant information on how the agencies and third parties are viewing your site; 2) analyze the facts and law to prepare arguments to advocate for your positions on issues likely to arise in the Five-Year Review; 3) recheck the prior Five-Year Review Report to ensure that the Agency properly followed-up on identified tasks; and 4) review the latest policies issued by your U.S. EPA Regional Office and State to ensure you have the capabilities in place to respond to new requests, such as assessing a vapor intrusion risks, adding institutional controls, and addressing new standards.

Don’t overlook the opportunities available to you in a Five-Year Review.  Your consultant may have detected favorable trends in the data that support eliminating a groundwater extraction well, monitoring well, or certain sampling parameters.  Ask the Agency for these advantageous modifications well in advance of the due date for the Five-Year Review so that these streamlining measures can be incorporated by the Agency into the Report.

No one wants to be surprised with a Five-Year Review Report concluding that your multi-million dollar remedy is not protective of human health and the environment.  The consequences of such a conclusion can be costly.

Olivera Egg Ranch (“Olivera”), an egg farm in French Camp, California, will pay $500,000 in nuisance damages awarded by a jury to eight nearby residents .  The residents complained of Olivera’s improper waste disposal and repulsive odors emanating from the 130,000+ pounds of manure generated by Olivera’s chickens each day.  Olivera operated a 13 acre lagoon to dispose of and process its manure.

The manure allegedly created revolting smells and released ammonia and other toxic fumes.  The complaint asserted nuisance claims in addition to claims under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and the Emergency Planning and Right- to-Know Act.  Specifically, the residents complained that the ammonia releases caused flu-like symptoms, eye irritation, sinus problems, and other physical manifestations.

Read about the damages awarded for the plaintiffs 'loss of property enjoyment and physical suffering in an article I recently published. 

CERCLA liability is a top concern for local governments interested in acquiring, cleaning up, or redeveloping contaminated property. Accordingly, U.S. EPA’s Office of Site Remediation Enforcement recently released a fact sheet addressing CERCLA liability issues for local governments, which summarizes key statutory provisions and requirements.  The fact sheet, titled “CERCLA Liability and Local Government Acquisitions and Other Activities,” is available here, and its aim is to identify the important role local governments can play in facilitating the cleanup and redevelopment of contaminated properties.  Significantly, the fact sheet cautions that EPA “encourages local governments to consult with their state environmental protection agency and legal counsel prior to taking any action to acquire, cleanup, or redevelop contaminated property.” 

Congress enacted the bona fide prospecitve purchaser defense ("BFPP") to all allow a prospective real estate purchaser to insulate himself from CERCLA liability. Two recent cases, Ashley II of Charleston, LLC v. PCS Nitrogen, Inc.,  2010 WL 4025885 (D.S.C.) and 3000 East Imperial LLC v RobertShaw Controls, Co., 2010 WL 5464296 (C.D.Cal.) support the importance of paying careful attention to the BFPP criteria both before and after the acquisition of contaminated property. Failure to do so may result in the acquisition of not only the property, but also significant liability. 
 
Read about specific criteria a purchaser must meet to assert the BFPP defense and learn lessons from the two cases cited above in a recent article.

A federal district court ruled in Evansville Greenway and Remediation Trust v. Southern Indiana Gas and Electric Co., Inc., (No. 07-00066) S.D. Ind. Feb. 25, 2011), ECF No. 917 that the PRP group seeking contribution under CERCLA must pay the attorneys' fees incurred by a mining company targeted by the PRP group for contribution. Previously, district courts have refrained from awarding defense fees under the Superfund Recycling Equity Act ("SREA") on the grounds that it would result in "manifest injustice" because the retroacive application of SREA would impose a fee-shifting component that did not exist when the contribution actions were initiated. With this recent ruling, PRP groups must carefully consider the risk of liability for defense fees and expenses prior to filing contribution actions against generators of material that potentially falls within the scope of SREA's exemption. Read more about SREA fee shifting and this ruling in a recent article.