Phillips Law Firm Blog

Your company, Heavy Metal Plating, Inc., operates the Old Alabama Plating Facility. a hard chromium plating plant in Alabama. The prior owner of the plant, Dirty Operators, Inc., operated the Old Alabama Plating Facility as a hard chrome plating facility from 1905 until 1978. In 1978, the Dirty Operators, Inc. sold the Old Alabama Plating Facility to your company, Heavy Metal Plating, Inc. Heavy Metal Plating, Inc. purchased the Old Alabama Plating Facility under an agreement in which your company, as buyer, assumed certain liabilities, but would be indemnified as to other liabilities. At the time, you believed such an arrangement was perfect. You knew exactly what you were responsible for paying, and everything else was the responsibility of Dirty Operators, Inc. The indemnification agreement provided:

Indemnity Against Unassumed Liabilities. Dirty Operators, Inc. hereby indemnifies Buyer against and hereby agrees to hold Buyer harmless from and to reimburse Buyer for any and all liabilities, losses, damages, costs of settlement and expenses which may be imposed upon or incurred by Buyer in connection with any liabilities or obligations of the Old Alabama Plating Facility other than those expressly assumed by Buyer.

In 1990, twelve years after the sale, the United States Environmental Protection Agency ("U.S. EPA") and the Alabama Department of Environmental Management began to investigate the Old Alabama Plating Facility site for toxic substances. No surprise to you, U.S. EPA found multiple solid waste management units from Dirty Operators' operations at the facility. As a result, U.S. EPA asked your company, Heavy Metal Plating, to sign an Administrative Order on Consent (the "Order") requiring Heavy Metal Plating to do a site-wide environmental investigation and eventually cleanup the site. The cost of the testing and clean up is expected to cost ten million dollars. Because you have an indemnification agreement from Dirty Operators, Inc., you inform U.S. EPA that you will not sign the Order. You inform U.S. EPA that Dirty Operators, Inc. is responsible for the cost of the cleanup pursuant to the indemnification agreement, and especially in light of the fact that your company conducted no on site disposal of wastes. U.S. EPA promptly responded by issuing a Unilateral Order against your company, Heavy Metal Plating, Inc., to begin the investigation and clean up.

You immediately consult with your environmental attorney to determine if the Order issued by U.S. EPA can be enforced in light of the indemnification agreement you received from Dirty Operators, Inc. when you purchased the facility. Your environmental attorney informs you that Section 9607(e)(1) of CERCLA provides:

No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release under this section, to any other person the liability imposed under this section. Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section.

42 U.S.C.A. § 9607(e)(1). After reading the provision several times, you tell your attorney that this provision of CERCLA appears internally inconsistent, and ask how the courts have interpreted this clause. Your attorney explains that the two sentences of Section 9607(e)(1) have been construed by the courts to mean "agreements to indemnify or hold harmless are enforceable between the parties but not against the government." Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir. 1988), cert. denied, 488 U.S 1029 (1989). In United States v. Hardage, the court held that under section 9607(e)(1) "responsible parties may not altogether transfer their CERCLA liability, [but] they have the right to obtain indemnification for that liability." United States v. Hardage, 985 F.2d 1427, 1433 (10th Cir. 1993). Your attorney further explains that the district court in Hatco Corp. v. W.R. Grace & Co.--Conn., 801 F. Supp. 1309 (D.N.J. 1992) held that:

Because § 9607(e)(1) renders ineffective any attempt to completely "transfer" liability, the most a party can do to limit its liability under CERCLA is to obtain from another an agreement "to insure, hold harmless, or indemnify" it from any liabilities established against it.

Id. at 1317 (quoting 42 U.S.C.A. § 9607(e)(1)).

Thus, Dirty Operators, Inc. could have lawfully agreed to indemnify Heavy Metal Platers, Inc., for its CERCLA liability. However, the indemnification is ineffective as a shield against liability imposed on your company by the government. In essence, an indemnification agreement, explains your attorney, only gives you the potential right to collect from the person who agreed to indemnify you. This means that the indemnification is only as good as the person who gives it; an indemnification will not protect you from governmental liability.

Having concluded that your company is responsible for complying with the Order, your attorney now turns to the issue of whether or not you can shift the responsibility for the compliance to Dirty Operators, Inc. The indemnification agreement that Heavy Metal Plating relies on for shifting liability was executed before CERCLA was enacted. Therefore, your attorney explains, the court must, at the outset, resolve the preliminary issue of whether a contract of indemnity that predates CERCLA can be construed to include indemnity against CERCLA liability. Your attorney explains that the courts that have analyzed pre-CERCLA indemnity provisions and have uniformly held that a pre-CERCLA agreement can, given the right language in the agreement, require one party to indemnify another against CERCLA liability. See, e.g., Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 327 (7th Cir. 1994); Hatco Corp., 801 F. Supp. at 1317-18; Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 132 (W.D.N.Y. 1991); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 356-58 (D.N.J. 1991). However, your attorney cautions, not all pre-CERCLA promises to indemnify cover CERCLA liability. The court will look to see whether an indemnification provision is either specific enough to include CERCLA liability or general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims.

You ask your environmental attorney if the specific indemnification agreement between Heavy Metal Plating, Inc. and Dirty Operators, Inc. can be used to shift your liability to Dirty Operators, Inc. Your attorney informs you that different courts look to different laws to determine if an indemnification agreement is enforceable. Under Alabama State law, if the court finds that the indemnification paragraph is ambiguous under the principles of Alabama law that guides determinations of contracts, Dirty Operators will not be required to indemnify your company as to the clean up. See Reeves Cedarhurst Dev. Corp. v. First Amfed Corp., 507 So. 2d 184, 186 (Ala. 1992). The Alabama courts have held that "An instrument is unambiguous if only one reasonable meaning clearly emerges." Vainrib v. Downey, 565 So. 2d 647, 648 (Ala. Civ. App. 1990). Your attorney warns you that because CERCLA liability was not in existence at the time your compnay entered into the indemnification agreement with Dirty Operators, Inc., the indemnification provision in your agreement is probably subject to more than one reasonable interpretation, i.e., it may or may not have covered liabilities for laws not yet passed. Therefore, the indemnification agreement is not plain enough to be construed as an unambiguous promise by Dirty Operators to indemnify Heavy Metal Plating against all environmental liability associated with the site of the Old Alabama Plating Facility, including liability without fault under laws like CERCLA, which were not yet passed when the agreement was signed. Your attorney explains that expecting Dirty Operators, Inc. to indemnify your company against CERCLA liability does not square with the principle of Alabama law that promises to indemnify are limited to subjects plainly and unambiguously expressed.

Generally, your attorney explains, only indemnity clauses with much broader and more inclusive language than here will shift liability under CERCLA. The Olin Corp. case provides one recent example of what the court expects to see in an indemnification agreement before it will shift liability pursuant to an indemnification agreement. The sale agreement in Olin Corp. provided:

[The buyer] hereby assumes and agrees to be responsible for and to pay, perform, discharge and indemnify [the seller] against, all liabilities (absolute or contingent), obligations and indebtedness of [the seller] related to the Aluminum Assets . . . as they exist on the Effective Time or arise thereafter with respect to actions or failures to act occurring prior to the Effective Time.

Olin Corp., 5 F.3d 12-13 (__ Cir. 19__). The court of appeals held that this provision evidenced a "clear and unmistakable intent" to transfer the seller's environmental liability to the buyer, even future and unknown liability. Olin Corp., 5 F.3d at 15-16. Amazingly, your attorney informs you that the indemnification provision in your Agreement is probably not specific enough to impose on Dirty Operators, Inc. a duty to indemnify Heavy Metal Plating for its CERCLA response costs. Since the indemnification language in your agreement does not clearly state that Dirty Operators, Inc. has agreed to assume all liability for toxic wastes under present or future laws protecting the environment, the best that you can hope for is to sue Old Alabama Plating for a fair contribution to the clean up costs under CERCLA since nothing demonstrates a clear and unambiguous intent to transfer all CERCLA liability to Dirty Operators, Inc. According to the courts anyway, this result reinforces CERCLA policy. "Congress enacted CERCLA, a complex piece of legislation . . . to force polluters to pay for costs associated with remedying their pollution." United States v. Alcan Aluminum Corp., 964 F.2d 252, 258 (3d Cir. 1992). The fact that you were not the polluter, but the victim of the pollution, is irrelevant in the eyes of CERCLA's liability scheme.

I always recommend that anyone purchasing a facility get the broadest indemnification possible as to past, present, future, known and unknown liability, contingent and otherwise. Although not touched upon in this article, I always warn clients to remember that an indemnification is only as good as the person giving it. If Dirty Operators, Inc. had been out of business or bankrupt, the indemnification would have been worthless since there would have been no assets to collect a judgment against. Although many people rely on indemnification agreements when purchasing a site, the reliance is often overstated, especially in light of cases like Beazer East, Inc. v. The Mead Corporation, ____ F. 3d ____ ( 3d Cir. 1994). The Beazer case upon which the above facts were taken, demonstrate just how broad an indemnification must be written before liability will shift.

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--

* * *

(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.

Your company, Silvers, Inc. formerly operated a silver plating facility in Anytown, USA. Your company sold the plant to Chromers, Inc. in 1978. Chromers, Inc. used the facility exclusively for chrome plating. In 1990, a citizen in your community complained to U.S. EPA about discolored drinking water. U.S. EPA conducted an investigation, ultimately focusing on the plating shop that your company operated. U.S. EPA's investigation showed that during the chrome-plating process used by Chromers, Inc., rinse water from finished parts was pumped out of the building onto the ground. This activity created a vast contamination plume emanating from the plant. In addition, U.S. EPA found low levels of silver in the groundwater, presumably from your company's past operations. The estimate for removing the silver and chrome from the groundwater is ten million dollars. About ten percent of the contamination in the groundwater is from the silver, and about ten percent of the cost of the cleanup is for the silver. The remainder is strictly for the chromium. If there were no chromium in the groundwater, the silver would not have to be removed since the concentrations are below that required for a cleanup. The chromium, however, would require a cleanup, regardless of whether the silver was present or not.

Six months ago, U.S. EPA filed a CERCLA cost-recovery action against your company, Silvers, Inc. and against Chromers, Inc. U.S. EPA seeks to hold your company and Chromers, Inc. jointly and severally liable for remedying the groundwater contamination from the site. Yesterday, Chromers, Inc. filed for bankruptcy protection., shut down production, and turned over all of its assets to the bankruptcy court. Chromers, Inc. turns out to have less than one million dollars in assets, and more than 2 million dollars in debt, excluding the cost of cleaning up the contamination in the groundwater. Since the estimated cleanup cost is going to be at least ten million dollars, you realize that little if any money will be paid to cleanup the site by Chromers, Inc.

You are well aware of CERCLA's joint and several liability provisions. You ask your attorney what, if anything, can be done to avoid having to pay more than your fair share of the costs of the removal action at the site. You explain to your lawyer that it simply does not seem fair that your company should pay a disproportionately larger share of the cost of the cleanup when the cost of removing the silver from the groundwater is so much less than the cost of removing the chromium contamination. Furthermore, but for the chromium, you would not have to be involved at this site since standing alone, the silver need not be cleaned up.

Your attorney tells you that joint and several liability can be imposed under CERCLA, but need not always be imposed. Your attorney explains that the courts around the country have developed three distinct, although closely-related, approaches to the issue of joint and several liability under CERCLA. The first is the "Chem-Dyne approach" which requires a defendant who seeks to avoid the imposition of joint and several liability to prove the amount of harm it caused. The defendant's contribution to the cleanup is then based on that amount of the cleanup cost. The second approach, the "Alcan approach," is adopted by the Second and Third Circuits and is similar to the Chem-Dyne approach except that the Alcan approach recognizes that, under the unique statutory liability scheme of CERCLA, the plaintiff (usually U.S. EPA) is not required to prove causation of the injury. Under the Chem-Dyne approach, the plaintiff must first prove that the defendant's conduct was a substantial factor in causing the harm; the defendant may limit its liability by proving its contribution to the harm. In contrast, the Alcan approach suggests that a defendant may escape liability altogether if it can prove that its waste, even when mixed with other wastes at the site, did not cause the incurrence of response costs. The third approach is the "moderate" approach. Under that approach, the court applies the principles enunciated in the Chem-Dyne approach in determining whether there is a reasonable basis for apportionment. If there is not, the court may impose joint and several liability; the court, however, retains the discretion to refuse to impose joint and several liability where such a result would be inequitable.

You are intrigued by the idea that you may not be liable for the cleanup costs of the now defunct Chromers, Inc., and you ask your attorney to explain in further detail. Your attorney informs you that the first published case to address the scope of liability under CERCLA is United States v. Chem-Dyne Corp., 572 F.Supp. 802 (S.D. Ohio 1983), which was cited approvingly in the legislative history of the SARA amendments to CERCLA. In the Chem-Dyne case, twenty-four defendants, who allegedly generated or transported hazardous substances located at Chem-Dyne's treatment facility, sought "an early determination" that they were not jointly and severally liable for the EPA's response costs. Id. at 804. After examining the statute and its legislative history, the court concluded that joint and several liability was not appropriate under CERCLA "in order to avoid its universal application to inappropriate circumstances." Id. at 810. The court used the following rationale from Section 433a of the Restatement (Second) of Torts for guidance in its decision:

(1)Damages for harm are to be apportioned among two or more causes where

(a) there are distinct harms, or

(b) there is a reasonable basis for determining the contribution of each cause to a single harm.

If the harm cannot be apportioned, pursuant to the above test from the Restatement, joint and several liability will be imposed. The nature of the harm is the key factor in determining whether apportionment is possible. Distinct harms -- e.g., where two defendants independently hurt someone at the same time, one injuring person's arm and the other injuring the person's leg -- are regarded as separate injuries. Although some of the elements of damages (such as lost wages or pain and suffering) may be difficult to apportion, "it is still possible, as a logical, reasonable, and practical matter, . . . to make a rough estimate which will fairly apportion such subsidiary elements of damages." Id., comment b on subsection (1). Following the rationale from the Restatement, the court concluded that the twenty-four defendants in the Chem-Dyne case could avoid the imposition of joint and several liability. United States v. Chem-Dyne Corp., 572 F.Supp. at 810.

The second test used by some of the federal courts, the Alcan approach, came from United States v. Alcan Aluminum Corp., 964 F.2d 252, 255 (3d Cir. 1992). The Alcan court also refused to apply joint and several liability to the defendants. The Alcan case involved millions of gallons of liquid wastes containing hazardous substances which were disposed of through a bore hole that led directly into underground mine workings. In 1985, 100,000 gallons of contaminated water were released from the site into the Susquehanna River. The government filed a cost-recovery action against twenty defendants; all but Alcan settled. The district court granted summary judgment for the government, holding that Alcan was jointly and severally liable for the response costs. The Third Circuit held that the "intensely factual nature of the 'divisibility' issue" highlighted the district court's error in granting summary judgment without conducting a hearing. Id. at 269. It remanded the case in order to give Alcan the opportunity to limit or avoid liability by attempting to prove its personal contribution to the harm to the Susquehanna River. Thus, under the Third Circuit's approach, Alcan could escape liability altogether if it could prove that its "emulsion did not or could not, when mixed with other hazardous wastes, contribute to the release and the resultant response costs." Id. at 270.

The Second Circuit essentially adopted the Third Circuit's approach to joint and several liability in another case involving Alcan, United States v. Alcan Aluminum Corp., 990 F.2d 711 (2d Cir. 1993). In that case, the Second Circuit reversed a summary judgment in favor of the government, stating that "Alcan should have the opportunity to show that the harm caused at PAS was capable of reasonable apportionment." Id. at 722. The court reasoned that Alcan was entitled to "present evidence relevant to establishing divisibility of harm, such as, proof disclosing the relative toxicity, migratory potential, degree of migration, and synergistic capacities of the hazardous substances at the site." Id. The court stated that Alcan could escape liability if it could prove that its oil emulsion, when mixed with other hazardous wastes, did not contribute to the release and resulting clean-up costs. It acknowledged that "causation is being brought back into the case -- through the backdoor, after being denied entry at the frontdoor -- at the apportionment stage." Id. However, the court pointed out that causation was "reintroduced only to permit a defendant to escape payment where its pollutants did not contribute more than background contamination and also cannot concentrate." Id.

The third test for avoiding joint and several liability is called the "moderate" approach, and was adopted by the court in United States v. A & F Materials Co., Inc., 578 F.Supp. 1249 (S.D. Ill. 1984). The A & F Materials case involved a disposal site at which over 7,000,000 gallons of waste were deposited. The court in A & F Materials thought that joint and several liability would be inconsistent with congressional intent, because Congress was "concerned about the issue of fairness, and joint and several liability is extremely harsh and unfair if it is imposed on a defendant who contributed only a small amount of waste to a site." Id. at 1256. The court concluded that six factors delineated in an unsuccessful amendment to CERCLA proposed by Representative (now Vice President) Gore could be used to "soften" the modern common law approach to joint and several liability in appropriate circumstances. Under this "moderate" approach, a court has the power to impose joint and several liability upon a defendant who cannot prove its contribution to an injury, but it also has the discretion to apportion damages in such a situation according to the "Gore factors":

(i) the ability of the parties to demonstrate that their contribution to a discharge[,] release or disposal of a hazardous waste can be distinguished;

(ii) the amount of the hazardous waste involved;

(iii) the degree of toxicity of the hazardous waste involved;

(iv) the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous waste;

(v) the degree of care exercised by the parties with respect to the hazardous waste concerned, taking into account the characteristics of such hazardous waste; and

(vi) the degree of cooperation by the parties with Federal, State, or local officials to prevent any harm to the public health or the environment.

Id. at 1256. The A & F Materials court stated that its moderate approach would promote fairness by allowing courts to be sensitive to the inherent unfairness of imposing joint and several liability on minor contributors, and to make rational distinctions based on such factors as the amount and toxicity of a particular defendant's contribution to a waste site. Id. at 1257.

Your attorney cautions you however to beware of those case which have held that joint and several liability is appropriate under CERCLA. In United States v. Ottati & Goss, Inc., 630 F.Supp. 1361 (D.N.H. 1988), operators of drum reconditioning businesses, property owners, and generators of wastes contained in the drums that were sent to the site for reconditioning were sued by U.S. EPA for the cost of the cleanup. The evidence in the Ottati case showed that chemical substances leaked or spilled from drums and were mixed together. The defendants proved approximately how many drums each brought to the site. However, the court nevertheless imposed joint and several liability, because "the exact amount or quantity of deleterious chemicals or other noxious matter [could not] be pinpointed for as to each defendant[, and] [t]he resulting proportionate harm to surface and groundwater [could not] be proportioned with any degree of accuracy as to each individual defendant." Id. at 1396.

A similar situation existed in O'Neil v. Picillo, 883 F.2d 176 (1st Cir. 1989). The site at issue in O'Neil was a Rhode Island pig farm that had been used as a waste disposal site. The site was described as having "massive trenches and pits 'filled with free-flowing, multi-colored, pungent liquid wastes' and thousands of 'dented and corroded drums containing a veritable potpourri of toxic fluids.'" Id. at 177. The defendants argued that it was possible to apportion the removal costs, because there was evidence of the total number of barrels excavated during each phase of the clean-up, the number of barrels in each phase attributable to them, and the cost of each phase. Id. at 181. There was testimony that, of the approximately 10,000 barrels excavated, only 300-400 could be attributable to a particular defendant. Id. at 182. The court concluded that because most of the waste could not be identified, and the defendants had the burden of accounting for the uncertainty, the imposition of joint and several liability was appropriate.

Your attorney advises you that since the silver placed into the groundwater is much less toxic than the chromium, and since the silver is a fingerprint to your business, and the chromium is a fingerprint to Chromers, Inc., there is a reasonable basis for apportioning liability. Furthermore, since the cost of the cleanup is being dictated by the chromium and not the silver, under the moderate approach or the Alcan Approach, your share of the cleanup cost would be significantly less than Chromers, Inc. Therefore, your attorney advises you to fight any attempt by U.S. EPA to impose joint and several liability for the site on your company. Accordingly, your attorney suggests that your company should only pay at most 10% of the cost of the cleanup as your fair share under the Chem-Dyne approach. Under the Alcan approach, your company should pay none of the costs of the cleanup since the chromium caused the entire harm. Under the moderate approach, your attorney explains that your fair share should also be no more than ten percent when weighing the equities of this case.

You are amazed, but you have a question. You ask your attorney who pays for the cleanup if Chromers, Inc. is out of business. Your attorney looks off into the distance, and explains that the government would have to fund Chromers, Inc.'s share. "Therefore," says your attorney, "I guess we all do."

I always advise clients not to give up hope in CERCLA cases as to joint and several liability, even when there are bankrupt defendants involved. Although the case law is not entirely uniform, certain basic principles emerge. First, joint and several liability is not mandated under CERCLA; Congress intended that the federal courts impose joint and several liability only in appropriate cases. If your company can show that you contributed little or nothing to the contamination, and the cost of cleaning up the amount you contributed will be little or nothing, you have a very good argument that you should pay exactly little or nothing.

You are the president and majority shareholder of Painters, Inc., a custom painting company. You started the company in your garage, and quickly relocated to a larger facility where you accept work from manufacturers for custom paint finishing. Because of the continued success of your company, you decided to expand again.

Working through a commercial real estate broker, you locate two buildings on a piece of property formerly owned by a dairy which went bankrupt. The building on the south side of the site was the former ice cream plant, and the building on the north side housed the former milk plant. The two buildings are very close to each other, separated only by an alley. The closing on the property goes smoothly and you are the proud owner of a new location for your paint facility.

The property is much larger than you need, but through the same real estate broker that helped you acquire the property, you arrange to sell the ice cream plant to another company which intends to use the facility for the production of frozen yogurt. Before the sale of the property, the purchaser of the ice cream plant asks if you would mind moving two drums which are partially filled with an unknown, sweet-smelling substance located on the south side of the alley. If you cannot get it done, the buyer states that he will simply have the drums disposed of properly. You do not know what the contents of the drums could be, but you cannot imagine that the contents of the drums could be hazardous given that the building housed an ice cream plant, so you agree to move the drums to your side, out of the buyer's way.

It has been three years since the drums were moved, and you are comfortably settled into your new location doing an even better business than you had anticipated. Your neighbor who owns the frozen yogurt plant seems to be doing well and you have become friends. Recently, however, he notifies you that as part of a refinancing plan for his business, he had to test the groundwater under his property for contamination, and he found extremely high levels of pesticides in the water. You explain that you will cooperate with the investigation, but you have never used pesticides on your facility, so you could not possibly be involved with the release.

A month later, representatives of your state EPA organization show up and request permission to drill groundwater wells and take soil samples on your site. The representatives inform you that the purpose of the sampling and wells is to determine from where the pesticide in the groundwater originates. You allow the EPA representatives to sample and to install the wells. About a month after the sampling and well installation, EPA representatives inform you that they want to meet with you. At the meeting, EPA representatives inform you that the source of the pesticide in the groundwater is the two corroded and leaking drums from the alley.

The EPA representative asks how the drums became located on your property. You explain to the EPA representative that the bankrupt dairy abandoned the drums on the property now owned by the frozen yogurt plant. You explain that you moved the drums onto your property when the current owner asked you to move the abandoned drums out of his way before his acquisition of the real estate. This, you explain, was your only contact with the drums, and you certainly had no idea that the dairy had abandoned pesticides on the property.

About a month later, you receive a notification from EPA that you are being held responsible for the cost of removing the drums, excavating the soils from the alley, and removing the contamination from the groundwater, all pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675. EPA claims that you are a responsible person because you disposed of hazardous substances at your property, namely pesticides. You immediately contact your attorney for environmental matters. You know that EPA must be mistaken, because you never improperly disposed of anything. Your attorney informs you that he will discuss the matter with EPA, perform the necessary research, and advise you of the accuracy of EPA's position. About a week later, your attorney provides you with the following analysis.

To hold you responsible for CERCLA liability, EPA must prove that you are a "responsible party" as defined by 42 U.S.C. § 9607(a)(1)-(4) which states:

[n]otwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section --

(1) the owner and operator of a . . . facility,

(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,

(3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, . . . of hazardous substances owned or possessed by such person, by any other party or entity, at any facility . . . owned or operated by another party or entity and containing such hazardous substances, . . .

(4) . . . [is a responsible party].

For purposes of CERCLA, "disposal" is defined as:

[t]he discharge, deposit, injection, dumping, spilling, leaking, or placing of any . . . hazardous waste into or on any land . . . so that such . . . hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters.

42 U.S.C. § 6903(3).

In your case, you ordered your employees to move the drums, later found to contain hazardous substances, from one location to another on the site while you owned the property. Under a fact pattern almost identical to this one, the court held in New York v. Almy Brothers, 866 F. Supp. 668 (N.D. N.Y., 1994), that simply moving drums from one location to another, even when the person who moved the drums was not the person who abandoned the drums, was enough to constitute "disposal" for purposes of CERCLA liability. In this case, your attorney explains, the court is likely to hold that you disposed of hazardous substances when you relocated the drums in the alleyway, or arranged for such relocation, so that the drums would not interfere with the new owner's activities. As the court in Almy Brothers stated, "[I]t is irrelevant whether or not the movement of the drums itself resulted in a release. The [defendants] disposed of these drums when they left them in the alleyway and allowed them to deteriorate in such a way that the chemicals they contained 'might' enter the environment."

Your attorney explains that courts have struggled with CERCLA's provisions to impose liability on what would otherwise seem like innocent people. The court's justify their holdings by citing to legislative history to find that CERCLA's fundamental goal is "overwhelmingly remedial" and, on that basis, interpret its provisions liberally in favor of liability. United States v. Fleet Factors Corp., 821 F. Supp. 707, 712 (S.D. Ga. 1993).

In Fleet Factors, the defendant argued that it was not responsible for damages caused by drums containing hazardous wastes which were on the property before its ownership. The court in Fleet Factors held that "[d]isposal may occur even though the potentially liable party did not introduce the disposed of substances to the site." CERCLA's definition of "disposal" expressly encompasses the "placing of any . . . hazardous waste . . . on any land." 42 U.S.C. § 69033(3) [as incorporated into CERCLA by 42 U.S.C. § 9601(29)].

You ask your attorney if you could argue that nothing you did "caused" the release of the hazardous substances into the environment. You simply moved the drums from one side of the alley to the other. Your attorney explains that the courts have ruled that an owner may not avoid liability by ". . . standing idle while an environmental hazard festers on his property." Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 845 (4th Cir. 1992).. As the Nurad court held "[t]he trigger to liability under § 9607(a)(2) is ownership or operation of a facility at the time of disposal, not culpability or responsibility for the contamination." Thus, the Nurad court concluded that "§ 9607(a)(2) imposes liability not only for active involvement in the dumping or placing of hazardous waste at the facility, but [also] for ownership of the facility at a time that hazardous waste was spilling or leaking." Nurad, 966 F.2d at 846.

Your attorney explains that had the drums been left on the south side of the alley, where they were originally abandoned by the dairy, liability probably would not have attached to you. Because the drums were not leaking at the time of the sale of the ice cream plant, you would have neither owned the property at the time of disposal, nor would you have been the party doing the disposal. However, at least for purposes of CERCLA liability, since you owned the property onto which the pesticide leaked after you moved the drums, the courts will likely hold you liable since, according to the court, you "disposed" of the material.

My recommendation to clients is never acquire property that has drums of anything located on it, leaking or not. Insist that the prior owner remove the drums before you acquire title. Never store mystery material with the expectation that it is not hazardous. If it turns out to be a hazardous substance, and it is leaking onto your property, chances are a court will find that you are somehow liable for its cleanup if it leaks into the environment. In this case, something as simple as moving the drums from the south side of the alley to the north side of the alley constituted disposal for this unlucky owner. The courts are stretching the CERCLA definition of "responsible party" to attach liability to even a broader spectrum of people and companies. The more creative the courts, the more cautious industry must become to avoid this web of liability. 

Your grandfather started a family business almost 80 years ago called Coaters, Inc. Although much more automated and modernized, the company still manufactures the same products, using the same chemicals as when your grandfather founded the company. Forty years ago, your father inherited the business from your grandfather. In 1975, your father moved the business to a new location. Six years ago, you inherited the business from your father after working for the business all of your adult life. Before your father passed away, you had to prove yourself capable of operating the business by being responsible for each major division, including environmental compliance.

The plant is currently located on a 42 acre parcel of land owned by the corporation. However, the land where the corporation was founded by your grandfather was still in your father's name at the time of his death, and you inherited this land also. You inherited the corporation by receiving all the stock that your father owned in the company. The real estate on which the company had formerly operated was transferred directly to your name from your father's estate since it was not held by the corporation.

Recently, you learned that the company disposed of hazardous wastes at its former location before you inherited the property. From at least 1930 through 1970, the company disposed of spent solvents used in the company's coating operations in an old company owned and operated landfill on the property. You were totally unaware of the company's prior disposal methods at the time you inherited the property and the business. The municipal water company discovered the hazardous waste landfill on your property when solvents started showing up in the city's water wells located approximately one mile away from the property. After an investigation, U.S. EPA traced the plume of contamination in the groundwater back to the former company location. U.S. EPA has notified you that your company and you personally are responsible for the cost of remediating the contamination of the groundwater emanating from the old company location.

When U.S. EPA notified you of the contamination emanating from your property, you launched an investigation into the origin of the contamination. You interviewed your oldest employees and learned of the prior disposal practices. You learned through reviewing old corporate documents that the company operated the landfill on the former location until 1975, just before the Resource Conservation and Recovery Act (RCRA) made such private landfills illegal. Before RCRA's implementation, the company discontinued the landfill operation, and until U.S. EPA notified you and the company, the landfill was for the most part simply forgotten.

Now, U.S. EPA wants your company and you personally to pay for the remediation. You understand how the corporation might be liable for the release since the company placed the wastes into the landfill. The U.S. EPA's assertion that you could be personally liable for the release is confusing. All the company's solvent disposal activities on the property stopped over twenty years ago, long before you became affiliated with the company, and long before you inherited the property. You believe that you are innocent of any wrongdoing, and therefore, you intend to fight U.S. EPA's assertion that you are personally liable for the contamination.

You contact an environmental attorney who explains that you may be liable for part of the remediation. Your attorney explains that in the event of a release or threatened release of a hazardous substance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) states that owners of property where such substances have been "deposited, stored, disposed of, or placed, or otherwise come to be located" are strictly liable for the costs of response. 42 U.S.C. § 9607. This strict liability provision caused many inequitable results to landowners who had not been involved in hazardous substance disposal activities. In response, as part of the 1986 Superfund Amendment and Reauthorization Act (SARA), Congress provided an additional statutory exemption from CERCLA liability: Congress passed the so-called "innocent landowner" exemption to give landowners a defense to the harsh liability provisions of Superfund. However, to qualify as an innocent landowner, a person must have acquired the property after the disposal of hazardous substances at the property. 42 U.S.C. § 9601(35)(A). Furthermore, the person asserting the innocent landowner defense must also establish by a "preponderance of the evidence" that at the time he acquired title to the property, whether by purchase or inheritance, he did not know, nor did he have reason to know of the disposal of any hazardous substances on the property. 42 U.S.C. § 9601(35(A)(i) and (iii).

You explain to your attorney that this is exactly what happened to you. You inherited the property with no knowledge of the prior disposal of wastes on the property. Therefore, you believe that the government should not be able to hold you personally liable for the contamination. However, your attorney explains that for the defense to be applicable, you must also establish, by a "preponderance of the evidence," that at the time you acquired title to the property, you "must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property, consistent with good commercial or customary practice in an effort to minimize liability." 42 U.S.C. § 9601(35)(B). Congress further directed the court to "take into account any specialized knowledge or experience on the part of the defendant, the relationship of the purchase price to the value of the property if uncontaminated, commonly known or reasonably ascertainable information about the property, the obviousness of the presence or likely presence of contamination at the property, and the ability to detect such contamination by appropriate inspection." 42 U.S.C. § 9601(35)(B). Your attorney further explains that the "all appropriate inquiry" requirement is applicable to inherited property. When passing the law, the Congressional Conference Committee stated:

[T]hose who acquire property through inheritance or bequest without knowledge may rely on this section if they engage in a reasonable inquiry, but they need not be held to the same standard as those who acquire property as part of a commercial or private transaction, and those who acquire property by inheritance without knowing of the inheritance shall not be liable, if they satisfy the remaining requirements of section 107(b)(3). (emphasis added)

Conference Committee Report, pp. 187-188.

Your attorney explains to you that it will be difficult, if not impossible, for you to argue under 42 U.S.C. § 9601(35)(B), that you should not be liable, even though you inherited the property without knowledge of the contamination. At the time you inherited the property, you possessed specialized knowledge of the environmental laws and regulations because of your employment with the company as its environmental compliance officer. You performed absolutely no investigation of the property even though you knew of the property's prior industrial usage. Furthermore, you knew of the types of hazardous substances being used on the property, by virtue of the fact that those same hazardous substances are being used by the company today. Your attorney tells you quite frankly, you never should have taken title to the property. By doing so, under CERCLA, with the knowledge that you possessed and the lack of investigative effort done by you before acquiring title, you also acquired liability for the remediation of the property.

You ask your attorney if this means that your company will have to pay the entire amount for the remediation. Your attorney informs you that your company will not have to pay for the entire remediation -- you and your company will have to pay for the entire remediation. Since the you personally own the property, if the remediation bankrupts your company, U.S. EPA will require you to use your own personal assets to continue funding the remediation. Simply put, your family business, everything you own, and everything you ever worked for is at risk of being lost because you inherited a contaminated piece of property.

My advice to clients is to be careful with environmentally impaired property when doing estate planning. In this example, if the company had owned the contaminated property when the father died, it would have been much more difficult, if not impossible, for the U.S. EPA to reach the son's personal assets. Do not allow yourself or someone you love to become the unwilling heir of contaminated property. If you own contaminated property, have your attorney evaluate your options for limiting the risk to those you leave behind. Furthermore, just because someone leaves you something upon death, does not mean that you are required to take title. If you inherit property that could have environmental problems, at a minimum, you must have an environmental consultant perform an evaluation of the property to the extent necessary based upon the property's prior history and use. I have advised clients on multiple occasions to refuse to accept real estate with environmental problems from a loving person who has died -- or maybe the person who died was not a "loving" person, and I prevented the dead person from having the last laugh at his enemy's expense.