Opinion ID: 3012864
Heading Depth: 3
Heading Rank: 1

Heading: PVM Transactions

Text: Morton alleges that Tenneco engaged in two types of “toll” or “conversion” transactions with the plant involving PVM, both of which comprise arrangements for the disposal of hazardous substances owned by Tenneco under Section 107(a)(3). Basically, Morton contends that Tenneco purchased the PVM either from the plant or some other supplier and then paid a fee to the plant for the conversion of the PVM into ROM or YOM. In either case, Morton argues, Tenneco owned the PVM throughout the conversion process, and was aware that the conversion process inevitably resulted in the release of hazardous waste.
The District Court addressed the issue of ownership or possession, and found that “the record evidence shows” that Tenneco did not own or possess the PVM that was processed at the plant. (App. at 12-13). The Court based its finding on two conclusions. First, the Court reasoned that whether Tenneco purchased the PVM through a broker or from the plant directly, the “ownership” alleged by Morton was a bookkeeping function done solely for the purpose of minimizing the plant’s financial risk in the volatile mercury market. And second, the Court determined that there was not a “showing that Tenneco was the necessary source of the PVM,” or that “Tenneco was a manufacturer of PVM.” Id. at 13. We will look first at the District Court’s conclusion that the “toll” or “conversion” transactions used by the plant were solely for the purpose of minimizing the plant’s financial risk in the volatile mercury market. One problem 18 with this conclusion is that it is an inference drawn in favor of Tenneco rather than Morton, the party opposing the motion. Another problem is that the conclusion inappropriately resolves a material factual dispute. Citing the plant brochure and the deposition testimony of several former plant managers, Morton explains that the plant customers, including Tenneco, had the option of supplying their own PVM and storing it in the plant’s vault or purchasing it directly from the plant. If the customer chose the first option, the plant would charge for the processing of the PVM into ROM or YOM and for insuring the mercury while it was stored at the plant, but the customer owned the mercury “at the beginning, middle, and end of the process.” (Morton Brief at 13) (citing App. at 660, 881, 458). In fact, one plant manager testified that when customers supplied PVM for processing, the customers continued to hold title to it while it was at the plant. Id. (citing App. at 238-240). Morton asserts that Tenneco was “a major conversion customer” from at least 1963 to 1973, and that it supplied significant amounts of PVM to the plant for processing. (Morton Brief at 13-14) (citing, inter alia, numerous weekly Physical Inventories and weekly Customer Ownership Reports documenting the number of Tenneco-owned pounds of mercury stored at the plant and converted into ROM and YOM). To be sure, Tenneco disputes Morton’s contention that it owned the PVM throughout the process. Tenneco contends that the plant used certain billing methods (which look like “conversion” or “toll” agreements) “to protect itself from the price volatility of the mercury market and the associated financial risk . . . .” (Tenneco Brief at 6). Tenneco also asserts that the PVM it allegedly owned was never segregated or labeled as belonging to it at any point in the process. Id. at 21-22 (citing App. at 533-34). In fact, Tenneco maintains that the customer-delivered PVM was not the actual mercury used to manufacture that customer’s ROM and YOM because mercury is homogeneous; instead the mercury was added to the plant’s inventory, like money in a bank. Id. at 22-23 (citing App. at 635-38, 533-34, 472-73). (Thus, Tenneco’s ownership of the PVM that was converted at the plant on 19 Tenneco’s behalf is very much in dispute. Morton has submitted evidence, including plant records and the testimony of former plant managers, from which it is fair to infer that Tenneco owned the PVM (regardless of whether it purchased it from the plant or a third party) throughout the conversion process. Proof of ownership, of course, is one of the principal factors in the “arranger liability” analysis. Therefore, this evidence is sufficient to withstand Tenneco’s motion for summary judgment.7
Although the District Court did not directly address the knowledge factor, it discussed evidence that is relevant. The Court referred to a memorandum from the United States Environmental Protection Agency (“EPA”) cited by Morton and concluded that the reference therein to Tenneco’s disposal of mercury by-products was “just not enough” evidence to survive a motion for summary judgment. (App. at 14, 15). Before we discuss the other evidence related to 7. Although we have already identified material disputed facts on the issue of ownership that warrant remand for further consideration, we pause to consider Tenneco’s argument that because mercury is homogenous, it could not have been owned by any particular customer throughout the oxide processing at the plant. See supra. Tenneco’s own analogy to money in a bank suffices to demonstrate the unreasonableness of its argument. When money is deposited in a bank the depositor does not cease owning the money because the actual dollars and cents it deposited are fungible and are used by other customers. Whether the plant segregated each customer’s PVM or simply added it all together is inconsequential. The ownership or possession factor can be satisfied by proof that Tenneco owned or possessed the amount of PVM that it paid to have processed into ROM and YOM. See App. at 881 (Wood Ridge Chemical Corporation Balance Sheet and Auditor’s Report, stating: “Since mercury is homogeneous, it is not possible to physically identify owned from non-owned mercury, but records are maintained to account for customer-owned quantities.”). Like ownership of money in a bank, Tenneco’s ownership of a mercury is not refuted by proof that other customers used the exact PVM it initially deposited. Cf. Hercules, 247 F.3d at 721 (finding defendant owned material despite intermingling with other materials during processing). 20 knowledge that was submitted by Morton, we will address Tenneco’s argument that the EPA memorandum should not be considered because it is not part of the record. Morton’s counsel read a portion of the 1971 EPA memorandum during the summary judgment oral argument, but neglected to move its admission into the record. Id. at 8081. Prior to filing its appellate brief, Morton moved the District Court to supplement the record with, among other things, the EPA memorandum. The motion was denied, and Morton has not appealed that decision. Because the memorandum is not included in the certified record, even after Morton’s motion to supplement the record, Tenneco argues that we should not consider it at all. Tenneco argues, too, that Morton’s counsel did not provide a copy of the document to either the District Court or opposing counsel. Morton asserts, however, that Tenneco produced this document during discovery. And, because counsel read the relevant portions of the memorandum into the record during oral argument without objection from Tenneco and because the District Court referred to the memorandum in her ruling, the memorandum is part of the record. According to Federal Rule of Appellate Procedure 10(a), the record on appeal is comprised of (1) the original papers and exhibits filed in the district court; (2) the transcript of the proceedings; and (3) a certified copy of the docket entries. “This definition not only includes items admitted into evidence, but also includes items presented to the district court and not admitted into evidence.” Waldorf v. Shuta, 142 F.3d 601, 620 (3d Cir. 1998) (citation omitted). Here, it is undisputed that the EPA memorandum was never included in the record in its entirety. Given that the memorandum does not appear to have been presented to the District Court, we will not review it in its entirety (which is not possible as a practical matter in any event because the document was not included in the appendices). See Waldorf, 142 F.3d at 620 (“The basic purpose behind the rule is to prevent parties from supplementing the record on appeal with items never presented to the district court.”) The next question is whether we can appropriately consider the portion of the memorandum that was read by Morton’s counsel during oral argument and which is found in the 21 transcript. Because we conclude that Morton presented evidence other than the portion of the EPA memorandum to establish Tenneco’s knowledge, and because we think that evidence created disputed facts, we do not need to decide whether it is appropriate for us to consider the memorandum on appeal. We leave it to the District Court to evaluate the admissibility of the document on remand. As we just mentioned, Morton presented evidence other than the EPA memorandum to establish Tenneco’s knowledge that the release of hazardous waste was an inherent and inevitable aspect of mercury processing. Specifically, Morton maintains that Tenneco was knowledgeable about mercury processing because it used ROM and YOM to manufacture products at its own facilities, and because it had produced mercury oxide at its Elizabeth facility in the past. (Morton Brief at 7-8, 9) (citing App. at 855). Morton contends that Tenneco must have been aware of the environmental risks inherent in mercury processing because “the hazards of handling and processing mercury were well known within the industry generally,” and because “substantial mercury loss, as well as known losses in dust and vapor, were an inherent part of manufacturing mercury intermediates,” and that those losses were “closely monitored by the Plant and its customers who provided the mercury.” Id. at 9, 10 (citing App. at 940, 942, 932-33, 796, 252-53). Tenneco does not dispute that it used ROM and YOM to manufacture its own products at its Elizabeth facility or that it produced mercury oxide at the same facility in the past. (Tenneco Brief at 24, 27). Instead, Tenneco accuses Morton of improperly relying on general facts about the plant’s relationship with its customers rather than facts specific to the plant’s relationship with Tenneco in attempting to prove Tenneco’s knowledge that waste was released during mercury processing. We think it is fair to infer from Tenneco’s involvement with mercury oxides at its own facility that Tenneco had some knowledge about the environmental hazards of mercury processing. We also think it is fair to rely on evidence provided by Morton about the plant customers generally. While Morton did not present evidence showing 22 that Tenneco, specifically, was monitoring the mercury losses during processing at the plant, it was not required to do so in order to survive Tenneco’s motion for summary judgment. After all, Tenneco was undisputably one of the plant customers, and it is thus reasonable to infer (absent proof to the contrary) that it had the same kind of relationship with the plant as did the other customers. Whether a jury would ultimately be persuaded by this evidence is uncertain, but that is not the standard we apply in evaluating a summary judgment motion. Accordingly, we believe that there are disputed facts with respect to Tenneco’s knowledge of hazardous waste releases during the processing of PVM at the plant. Because knowledge is one of the principal factors in the “arranger liability” analysis, this evidence is sufficient to withstand Tenneco’s motion for summary judgment.
The District Court did not directly discuss this factor. But, related to control, the Court observed that it would not have mattered if Tenneco had shipped PVM directly to the plant on a regular basis because “it is what happened [at the plant] and [Tenneco’s] involvement . . . with respect to what happened [at the plant] that’s important.” (App. at 12). We disagree with the Court’s suggestion that proof that Tenneco shipped PVM directly to the plan would have been irrelevant. Such proof could demonstrate Tenneco’s ownership, or at least possession, of the PVM. More importantly, though, the parties dispute Tenneco’s level of control over “what happened” at the plant. Morton states that “customers such as Tenneco played a key role in shaping the Plant’s production processes and its resulting emissions” by approving a new process for mercury oxide manufacturing in the late 1960’s. (Morton Brief at 11) (citing App. at 827-28, 923, 952, 953, 406-10). Morton argues that the customer’s approval of the production process amounted to some control over the production process. Tenneco, however, disputes Morton’s assertion that it had any control over the plant operations or disposal practices. (Tenneco Brief at 12-13) (citing App. at 504, 268, 340-42, 244-50). 23 Again, Morton’s evidence about the customers generally is relevant — Tenneco was undisputably a customer of the plant. Whether this evidence alone is sufficient to establish control is another matter. Because we are remanding this case to be analyzed under the standard articulated above, we suggest that the District Court consider this evidence in the subsequent proceedings.
The District Court characterized the PVM transactions as “sales transactions” and referred to the “useful product defense” discussed in Pneumo Abex Corp. v. High Point, Thomasville and Denton R.R. Co., 142 F.3d 769, 774 (4th Cir. 1998). (App. at 13-14). Tenneco argued below, and continues to argue on appeal, that this defense applies because the transactions at issue were nothing more than a sale of a useful product (PVM) and a purchase of finished products (ROM and YOM). We believe that there are disputed facts with respect to the critical elements of this defense.‘’ In Pneumo Abex, the court concluded that “ ‘treatment . . . of hazardous substances’ as used in CERCLA refers to a party arranging for the processing of discarded hazardous substances or processing resulting in the discard of hazardous substances.” 142 F.3d at 774. Accordingly, the sale of valuable materials to a processor alone does not satisfy the requirements for “arranger liability.” See Glaxo Wellcome, Inc., 189 F.3d at 164; Solvent Chemical Co., 225 F. Supp. 2d at 280. We agree with Tenneco that the sale of PVM alone or the purchase of ROM and YOM alone — without evidence of ownership or possession, knowledge, and control — would not be sufficient grounds on which to impose “arranger liability.” Those transactions would either not meet the standard we have articulated or would fall within the “useful product defense.” It would be inappropriate at this stage in the proceedings, however, to conclude that the transactions between Tenneco and the plant were nothing more than a sale of PVM or the purchase of ROM and YOM because of the factual disputes we have described with 24 respect to the key elements of ownership or possession, knowledge, and control.