You are the owner of Metal Painters, Inc. Like most metal finishing companies, you use solvents in your operations for cleaning certain metal parts prior to coating. Thomas Solvent, a producer and seller of solvents, sold virgin solvents to numerous customers, including your company from 1963 to 1984. In 1984, Thomas Solvent filed for bankruptcy protection. After Thomas filed for bankruptcy protection, you expected that you had heard the last of Thomas Solvent, until yesterday. Yesterday, you received a complaint via certified mail from U.S. EPA. Apparently, you are being sued by U.S. EPA for the cleanup of the Thomas Solvent facility. You immediately contact your environmental attorney and explain that you are being sued. Your environmental attorney requests that you meet with him to discuss the facts of your relationship with Thomas Solvent.
You arrange a meeting with your environmental attorney and a former employee of Thomas Solvent accompanies you to the meeting. At the meeting, you and the former Thomas Solvent employee explain to your attorney that Thomas Solvent owned a facility where it conducted storage, transfer, and packaging of solvents. Thomas Solvent delivered solvents to you in fifty-five gallon drums from its facility. Through a drum-deposit arrangement, Thomas Solvent shipped the solvents to you in its re-usable drums and charged you a deposit. Most often, the Thomas Solvent delivery person retrieved the used drums when delivering new, full drums. The returned drums were usually taken to Thomas' facility for refurbishing and re-use. Your company was credited for the amount of the drum deposit, when it returned the old drums to Thomas Solvent.
The contents of your returned drums varied. Some of the drums' contents had been emptied as much as possible, while others contained unused solvents of up to fifteen gallons. Thomas Solvent employees inspected the drums when the drums reached its facility. Thomas Solvent would send drums in need of reconditioning to a reconditioner, often without being rinsed or cleaned. Drums not in need of reconditioning were emptied of any remaining contents, often, onto the ground. The emptied drums were either immediately refilled with solvent or cleaned with a rinseate solution. Prior to 1978, the used rinseate was usually dumped onto the ground. In later years, Thomas Solvent began to recycle the rinseate at off-site locations.
Your attorney listens to the facts carefully, and then reviews the complaint that was filed against your company. U.S. EPA filed a complaint against your company, alleging that your shipping of drums with small amounts of solvent in them constituted the illegal disposal of hazardous substances which makes you liable for the cost of remediation at Thomas' facility pursuant to CERCLA § 107, 42 U.S.C. § 9607. U.S. EPA is requesting over $5 million in past response costs for cleanup activities at the Thomas Facility plus a declaratory judgment for future response costs. Your heart sinks into your feet as you tell your attorney, "I don't have $5 million laying around with U.S. EPA's name on it." Your attorney agrees that it would be cheaper to fight, because losing means certain ruination of your business. You ask your attorney whether fighting is futile, or should you just turn the corporate assets over to U.S. EPA and get on with your life.
Your attorney explains that U.S. EPA is asking the court in the complaint filed against you to declare that recycling the fifty-five gallon drums constitutes disposal The court will be called upon to interpret the scope of CERCLA arranger liability. The relevant provision of CERCLA states that:
Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section--
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(3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances, . . .shall be liable . . . .
42 U.S.C. § 9607(a).
You tell your attorney that you never had a contract to dispose of anything with Thomas Solvent. Your attorney explains that U.S. EPA does not contend that you arranged for disposal by contract or agreement; rather, U.S. EPA asserts that you "otherwise arranged for disposal" of the unused hazardous solvents through the drum-deposit arrangement. U. S. EPA's assertion is that your company entered into an arrangement, whereby Thomas Solvent would pick up the residue-containing drums, take them to its facility, dispose of the residue, and then credit your company with the drum deposit. Therefore, to the extent that you had the "intent" to dispose of this residue, you would be liable for "arranging for disposal."
Your attorney explains that CERCLA does not define the phrase "arrange for." Therefore, the courts have concluded that the requisite inquiry is whether the party intended to enter into a transaction that included an element of "arranging for" the disposal of hazardous substances as held by the court in Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 751 (7th Cir. 1993). Your attorney explains that your company's intent need not be proven by direct evidence, but can be inferred from the totality of the circumstances -- in other words, not by one piece of evidence but by looking at all of the evidence collectively.
You are confused at this point and tell your attorney that you thought CERCLA was a strict liability statute. Discussing state of mind in a CERCLA case appears crazy to you. After all, cases like United States v. R.W. Meyer, Inc., 889 F.2d 1497, 1507 (6th Cir. 1989), cert. denied, 494 U.S. 1057 (1990); and J.V. Peters & Co. v. Administrator, EPA, 767 F.2d 263, 266 (6th Cir. 1985) taught companies long ago that CERCLA is a strict liability statute.
Your attorney explains that your are correct; CERCLA is a strict liability statute in most instances. However, notwithstanding the strict liability nature of CERCLA, the court must recognize the indispensable role that state of mind must play in determining whether a party has "otherwise arranged for disposal . . . of hazardous substances." 42 U.S.C. § 9607(a). Your attorney explains that intent in this context is no stranger to U.S. EPA or the courts. The Sixth Circuit has read an intent or state of mind requirement into the "otherwise arranged for disposal" concept, although U.S. EPA keeps filing cases hoping that it can somehow disregard the intent portion of "otherwise arranged for" disposal. In AM Int'l, Inc. v. International Forging Equip. Corp., 982 F.2d 989 (6th Cir. 1993), the Sixth Circuit was called upon to decide the applicability of arranger liability. In that case, AM International (AMI) entered into an agreement to sell a manufacturing facility to a realty company. In the AMI case, your attorney explains, the facility contained several types of machinery and fixtures necessary for the manufacture of component parts for offset duplicating machines. After ceasing their manufacturing process, AMI cleaned up the facility and cleared it of industrial wastes. Nevertheless, because the facility was sold on an "as is, where is" basis, certain manufacturing features, including electroplating baths, salt pots for heat-treating, and the waste water treatment plant, were left by AMI containing the appropriate solutions, so that the lines would be prepared for an immediate start-up of the facility by a new owner. In the AMI case, the court held that AMI had not arranged for disposal of the hazardous substances that it left in the building. The court stated: "Liability only attaches to parties that have 'taken an affirmative act to dispose of a hazardous substance . . . as opposed to convey a useful substance for a useful purpose.'" Id. (quoting Prudential Ins. Co. v. United States Gypsum, 711 F. Supp. 1244, 1253 (D.N.J. 1989)). Therefore, your attorney explains, in the absence of a contract or agreement, a court must look to the totality of the circumstances, including any "affirmative acts to dispose," to determine whether a company intended to enter into an arrangement for disposal.
In concluding that the transaction in AM Int'l was not a disposal, the Sixth Circuit relied on two findings of the district court. First, the court relied on the finding that "'both [the buyer] and AMI intended that the chemicals would be used for the purposes for which they had been bought--the continued operation of the electroplating, heat-treating, and other processes.'" AM Int'l, 982 F.2d at 999. Second, the court found that "the chemicals "'were useful and had value.'" Id. Your attorney explains that basically, the district court determined that the chemicals were not left at the facility with disposal in mind. Your attorney explains further that other Circuit Courts have held similarly. For example, your attorney explains that the Seventh Circuit held that an "intentional action" requirement for arranger liability was required as announced in Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 756, 751 (7th Cir. 1993), cert. denied, 114 S.Ct. 691 (1994).
Your attorney concludes that the court will not find you liable under section 107(a)(3) of CERCLA absent a showing by U.S. EPA that your company intended to dispose of the residual amounts of the hazardous substances remaining in the returned drums. The fact that you incidentally got rid of these residues does not mean that it was your purposeful intent to dispose of the residues; rather, this was merely incidental to the drum return. You agree and direct your attorney to begin the litigation to oppose U.S. EPA's attempt at collecting cleanup costs from your company. Ultimately, after the discovery process of the litigation is concluded, you are dismissed from the lawsuit, having to pay U.S. EPA no cleanup costs for the Thomas Facility remediation.
The above case was taken from United States of America v. Cello-Foil Products, Inc., et al., ____ F.3d _____ (6th Cir., 1996). I tell clients that examining state of mind or ascertaining intent at the contract, agreement, or other type of arrangement stage does not undermine the strict liability nature of CERCLA. The intent inquiry is geared only towards determining whether the party in question is a potentially liable party. Once a party is determined to have the requisite intent to be an arranger, then strict liability takes effect. If an arrangement has been made, that party is liable for damages caused by the disposal regardless of the party's intent that the damages not occur. I often warn clients about the fine line distinctions in some of the environmental cases. For a discussion on how a party can inadvertently "arrange for" disposal and be liable for cleanup costs, see the very first issue of Legal Alert published in the April 1995 edition of Metal Finishing entitled "Off-Color Paint." In that article, a company that sold material that did not meet specification "just to get rid of it" was held liable for clean-up costs. The distinctions in these cases are subtle, but the difference in outcome can be devastating to your company.