Opinion ID: 2737139
Heading Depth: 1
Heading Rank: 4

Heading: NCR’s Arranger Liability

Text: Next, we address an argument made on cross-appeal by P.H. Glatfelter Company and WTM I Company (collectively “Glatfelter”) that the district court, despite its allocation of all response costs for operable units 2 through 5 to NCR, subjected NCR to less liability than it deserved. Glatfelter asserts that NCR should have been held liable under CERCLA as an entity that “arranged for disposal” of a toxic substance (PCBs) based on its corporate predecessor’s sale of broke to 38 Nos. 13-2447 et al. recycling mills. See CERCLA § 107(a)(3), 42 U.S.C. § 9607(a)(3). While this matter would be largely academic if only operable units 2 through 5 were at stake, a finding adverse to NCR on so-called “arranger liability” would also make it liable for response costs at operable unit 1, which is the designation for Little Lake Butte des Morts. This would increase NCR’s exposure in contribution. Glatfelter’s case for NCR’s arranger liability centers on the actions of NCR’s corporate predecessor Appleton Coated Paper Company, which was one of the mills that coated carbonless copy paper with NCR’s emulsion during the production period. Recall from the discussion of Appvion’s CERCLA § 107 claim that Appleton Coated was eventually subsumed within NCR, and that its CERCLA liability contractually remained with NCR when its assets were sold to the corporation now known as Appvion. See supra at 14. Recall further that one way the carbonless coating mills made money during the production period was to sell their broke to the recycling mills for reprocessing. See discussion beginning supra at 5. The theory advanced by Glatfelter is that Appleton Coated was “arranging for disposal” of its PCBs when it sold the broke to the recycling mills, and therefore that NCR remains responsible for the site where those PCBs ended up. The district court held a trial on this point and made several findings of fact. Even though Appleton Coated tried to minimize its broke creation because its sale price did not outweigh the cost of materials and labor, the broke was valuable and recorded as an asset on the company’s balance sheet. Selling broke, the court concluded, allowed Appleton Coated to “mitigate losses” from its production of carbonless Nos. 13-2447 et al. 39 copy paper; the court rejected the idea that the broke was an independent product for sale. The broke had value to the recycling mills, which is why they were willing to pay for it; the alternative would have been for Appleton Coated to pay for disposal or recycling. Appleton Coated invested a considerable amount of money in recovering the broke, grading it, sorting it, storing it, and baling it. The broke was then sold to the recycling mills in a competitive market. After using it, the mills would direct as they saw fit disposal of their waste from reprocessing the broke. Though the recycling mills attempted to prove that Appleton Coated knew that NCR’s PCB emulsion would end up in the River as a result of its broke sales, the district court found the evidence insufficient to conclude that any individual employee at Appleton Paper fully knew what the mills were doing with the non-fibrous components of broke. This is not to say Appleton Coated was ignorant of the general recycling process; it realized that some byproduct would end up in the River. Nevertheless, the evidence did not show that Appleton Coated was aware of how much byproduct would be flushed into the River and the extent to which it would be treated before it was discharged. The court characterized Appleton Coated as “indifferent” to what happened to its broke after it was sold. What qualifies as “arranging for disposal” under CERCLA § 107 is clear at the margins but murky in the middle. At one end of the spectrum are parties that “enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance.” Burlington Northern & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 610 (2009). Those entities are clearly covered by the statute. At the other 40 Nos. 13-2447 et al. end, a party cannot be held liable “merely for selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination.” Id. Between these two extremes is a gray area, where liability becomes a “fact-intensive inquiry” that goes beyond the formalities of whether the transaction is termed a “disposal” or “sale” and looks to whether Congress meant to cover the transaction when it enacted CERCLA. Id. In Burlington Northern, the Supreme Court held that Shell Oil Company could not be held liable as an arranger when it contracted for the shipment of a hazardous chemical with knowledge that some of it was likely to leak en route. Id. at 604. Mere knowledge of potential spills was not enough to show that Shell “planned for” disposal of the chemical. The Court explained that arranger liability will not follow when the disposal is the “peripheral result of the legitimate sale of an unused, useful product.” Id. at 612. By contrast, the First Circuit’s decision in United States v. General Electric Co., 670 F.3d 377 (1st Cir. 2012), illustrates a situation where a nominal “sale” qualified as the kind of disposal that triggers arranger liability. There, General Electric sold drums of “scrap” material containing PCBs that it could not use in electric capacitators. It charged a bargain price to a local “chemical scrapper” who put them to use for his “industrial needs.” Id. at 380. Although the scrapper later informed General Electric that the quality of the material was declining and that they should come retrieve some of the drums, the drums remained unused on the site for years and began to leak. Id. at 381. The court reasoned that material stored in 55-gallon drums that the company tried to unNos. 13-2447 et al. 41 load in any way it could (including transfers to local landfills, sales to local governments for use as a dust suppressant, giving it away to employees, and discharging it into the Hudson River) was waste for disposal, regardless of whether the scrapper paid a nominal fee. Id. at 385. The court affirmed the factual finding that “any profit it derived from selling scrap [chemicals] … was subordinate and incidental to the immediate benefit of being rid of an overstock of unusable chemicals.” Id. The district court here arrived at a different conclusion: it found that Appleton Coated’s main purpose in selling broke was not to get rid of it, but instead to place it on a competitive market and recoup some of its costs of production. This is a factual finding, and thus one that we would disturb only if it were clearly erroneous. It is not. The district court explained that Appleton Coated invested significant resources in recapturing broke, and that it would have disposed of the broke quite differently if there were not such a healthy market for it. The court also observed that the mill was not selling containers of concentrated PCBs in an attempt to get rid of them, but instead was selling a product (broke) that is not inherently hazardous, and often comes without PCBs at all. This distinguishes broke from the drums of chemicals at issue in General Electric. Glatfelter argues that arranger liability should follow because Appleton Coated knew that the recycling mills would separate the paper fibers in the broke from the PCBs, and that the mills would then dump the PCBs into the River. It would be enough, it contends, that the production mills took “intentional steps” to discard the broke given their knowledge that it would end up in the River. Glatfelter urg42 Nos. 13-2447 et al. es in particular that the district court’s finding that Appleton Coated was at most indifferent to the final destination of the PCBs, and that there was no particular knowledge of their fate, set too high a bar, and that “generalized knowledge” that the recycling mills would dispose of them in some way would suffice. Glatfelter’s two-step rule to finding arranger liability, under which all that would have to be shown is intentionally getting rid of a product and knowing that some part of it will be disposed later, would sweep almost any entity that ever touches the product under arranger liability. Even the original producer would fall under this definition, as Monsanto intentionally sold Aroclor to NCR and must have known that some portion of it would end up being discarded. NCR’s sale of carbonless copy paper on the consumer market might also qualify as “arranging for disposal” under this theory, because eventually all consumer paper ends up being disposed of somewhere. This would expand arranger liability well past the limit established in Burlington Northern. Perhaps, however, Glatfelter is willing to accept a narrower rule, under which the putative arranger must be someone other than the manufacturer of the product. But again, Burlington Northern establishes that not all parties fitting that bill will qualify as arrangers. A company using hazardous materials to manufacture a “new and useful product” that it then sells on the open market, even with knowledge that some of that product will be discarded, is not an arranger, although it might be liable under another provision of CERCLA. Even selling with perfect knowledge that the buyer will dispose of the materials at some point in the future cannot Nos. 13-2447 et al. 43 on its own qualify as arranging for disposal. In order to decide if someone is an arranger, it is also important to look at the party’s intent. It is more likely to be an arranger if it was simply trying to dispose of the materials, or if it was compelled to get rid of them. Although getting the broke out of its factory was surely useful at some level to Appleton Coated, getting rid of inventory is useful to every seller of a product. The simple fact, based on the district court’s findings, is that Appleton Coated was not just trying to find a way to dispose of trash when it sold its broke, nor did it need to find a way to bring it to an ultimate destination. It prepared and sold broke because broke was a valuable input for the recycling mills. Once the recycling mills obtained Appleton Coated’s broke, what happened to the PCBs embedded in the broke was completely out of the seller’s hands. The recycling mills could have dumped the byproduct of their broke processing in the River, sold it again to another entity, contracted with a disposal company to get rid of it, or brought it to a landfill themselves. Whatever the buyers did with this byproduct, Appleton Coated neither contracted with them to take that step, nor did it have any control over what the recycling mills ultimately did. This lack of control is a good reason to find Appleton Coated was not arranging for disposal (though we do not mean to suggest that an ostrich approach would work). See United States v. Shell Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002) (“[C]ontrol is a crucial element of the determination of whether a party is an arranger under § 9607(a)(3).”). Compare Catellus Dev. Corp. v. United States, 34 F.3d 748, 750–52 (9th Cir. 1994) (finding arranger liability when auto parts store sold used batteries to “cracking plant” for disposal even though plant extracted lead from batteries, 44 Nos. 13-2447 et al. while rejecting idea that all byproduct sales are disposal), with Shell Oil, 294 F.3d at 1055 (distinguishing Catellus because party had no “direct involvement in arrangements for the disposal of waste”). It is true that broke is not a “new and useful product” as described in Burlington Northern. 556 U.S. at 610 (emphasis added). It is useful, but not new. Sales of a new and useful product, however, were meant to represent one end of a continuum. Other sales can still qualify, particularly when they are for more than token amounts and take place on a competitive market. And unlike the products in both Burlington Northern and General Electric, the “product” at issue here was not the harmful chemicals themselves, but a useful input that also contained the hazardous material. Purchasing this product was essential to the recycling mills’ business operations, and they must take the bitter with the sweet of operating in that market. We therefore affirm the district court’s holding regarding NCR’s arranger liability.