In Consolidated Coal Co. v. Georgia Power Co., 781 F.3d 129 (4th Cir. 2015), the 4th Circuit Court of Appeals held that the seller of used transformers containing PCBs had no CERCLA “arranger” liability for PCB contamination caused by the buyer of the used transformers. The 4th Circuit held that the seller could not be liable as an “arranger” under CERCLA because it had sold useful transformers with commercial value and had not intended that the transformers be “disposed of” rather than beneficially reused.

In the early 1980s, Georgia Power began selling many of its used electrical transformers at auctions. At the time of the sales, the transformers contained insulating oil, and some of that oil contained PCBs. The buyer of the transformers repaired and rebuilt them for resale to third parties. In the process, the buyer’s North Carolina facility (the “Site”) became contaminated with PCBs. The EPA later added the Site to its National Priorities List and initiated a costly removal action. The companies that had borne much of the removal costs later sued Georgia Power, arguing that it had liability under CERCLA.

CERCLA imposes liability upon four broad categories of potentially responsible parties, including “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 or incineration vessel owned or operated by another party or entity and containing such hazardous substances.” 42 U.S.C. § 9607(a)(3) (emphasis added). The plaintiffs contended that, as a supplier of some of the transformers that contaminated the Site, Georgia Power had “arranger” liability under CERCLA. After analyzing case law interpreting the scope and meaning of “arranger” liability, the 4th Circuit disagreed.

The court began its analysis — not surprisingly — with reference to the U.S. Supreme Court’s holding in Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009), which discussed the scope of CERCLA “arranger” liability:

At one extreme, liability plainly attaches if an entity enters a transaction for the sole purpose of discarding a used and no longer useful hazardous substance.  On the other extreme, there is no liability 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.  [B]etween these two extremes are arrangements where the seller has some knowledge of the buyer’s planned disposal or whose motives for the sale of hazardous substances are less than clear.  In those cases, the court must undertake a fact-intensive inquiry that looks beyond the parties’ characterization of the transaction as a disposal or a sale. (internal citations and symbols omitted).

The 4th Circuit then evaluated four factors that pre-Burlington case law found useful for determining if a transaction was for the discard of hazardous substances or for the sale of valuable materials. These factors were:

1. The intent of the parties to the contract as to whether the materials were to be reused entirely or reclaimed and then reused.
2. The value of the materials sold.
3. The usefulness of the materials in the condition in which they were sold.
4. The state of the product at the time of transferal (i.e., was the hazardous material contained or leaking/loose).

With regard to the first factor of intent, the court examined the underlying Georgia Power transactions and concluded there was no direct or circumstantial evidence that Georgia Power intended, even in part, to arrange for the disposal of PCBs through the sales of its transformers. Instead, the direct evidence demonstrated that Georgia Power’s only intent with regard to the transactions was to sell its used transformers to the best financial advantage to the company. While Georgia Power’s internal procedures for selling the used transformers referred to “scrapping” and “disposal” of the transformers, the court refused to equate Georgia Power’s use of those terms in its internal procedures to the meaning those terms may have under CERCLA. Furthermore, there was no circumstantial evidence that either party intended that the transformers be scrapped or sold for parts as reclaimed materials as opposed to being reused in their entirety.

With regard to the second factor (the value of the materials sold), the court noted that Georgia Power recovered revenue in excess of scrap value from the sales of the transformers and that the buyer of the transformers also profited from the subsequent resale of the transformers. Additionally, the court noted that the buyer sometimes lost out to other higher bidders on purchasing Georgia Power’s transformers, thus indicating that the transformers had value and were in general demand.

With regard to the third factor (the usefulness of the materials in the condition in which they were sold), the court found that the evidence showed that the presence of PCBs in the transformers did not inherently affect their “usefulness.” Instead, the specifications of the buyer’s customers (not the presence of PCBs) dictated how the buyer would process the transformers it purchased from Georgia Power.

Finally, with regard to the fourth factor (the state of the product at the time of transfer), the court found there was no evidence that any “disposal” under CERCLA occurred during the transfer of the transformers from Georgia Power to the buyer, nor was there any evidence of the transformers leaking or spilling in conjunction with the sale transfer. The court noted there was no evidence that Georgia Power had any knowledge of the ultimate disposition of the transformers or PCBs after the buyer purchased them. Accordingly, the court found no “arranger” liability under CERCLA.

The Consolidated Coal holding is an important example of the fact-intensive nature of determining “arranger” liability under CERCLA. The 4th Circuit’s ultimate holding and its focus on the arms-length nature of the subject sales demonstrate the types of transactions courts will examine with greater scrutiny when determining “arranger” liability.

For more information regarding this case, please contact Chase Dressman.