Fifth Circuit Rules No CERCLA “Arranger Liability” Absent an Affirmative “Intent to Dispose”

Sidley Austin LLP
Marie L. Fiala, Samuel I. Gutter and Peter R. Steenland

January 15, 2015

In a case involving “arranger” liability under CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act), the Fifth Circuit on January 14 reversed a Texas federal district court that had held BorgWarner liable for leaks of dry cleaning solvent into the environment from equipment sold by Norge, an affiliate of BorgWarner’s corporate predecessor. Vine Street LLC v. Borg Warner Corp., No. 07-40440 (5th Cir., Jan. 14, 2015). Following the Supreme Court’s landmark decision in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009), the Fifth Circuit held that Norge had no “intent” to dispose of dry cleaning solvent and remanded to the district court to enter judgment in favor of BorgWarner.

Norge designed and sold the dry cleaning equipment to the plaintiff Vine Street LLC, including a system for reclaiming perchloroethylene (PERC). Over time, some of the PERC leaked into sewer pipes and from there into the ground. Vine Street sued to recover clean-up costs. Following a full trial, in 2006 the district court for the Eastern District of Texas found BorgWarner liable for 75 percent of the clean-up costs on the grounds that Norge knew that its reclamation system wasn’t completely effective and that some PERC would inevitably be discharged to the sewer system.

BorgWarner appealed the judgment to the Fifth Circuit; its appeal was stayed for years while the effect of another party’s bankruptcy was sorted out. By the time the stay was lifted, the Supreme Court had issued its decision in Burlington Northern, holding that “knowledge alone is insufficient to prove that an entity ‘planned for’ the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product.”

Norge’s intent in designing dry cleaning equipment was to reclaim PERC, not to dispose of it. Recognizing that “the distinction between an intention and a knowing act is a relatively fine one,” the Fifth Circuit nonetheless held that even though Norge knew that some PERC would inevitably find its way into the sewer system, that wasn’t enough. PERC was a useful product and Norge at no point intended to dispose of it as waste. The issue, the court held, was sufficiently clear that a remand for further proceedings wasn’t necessary; instead, the appeals court remanded to the district court with instructions to enter judgment in favor of BorgWarner.

The decision in Vine Street is significant because it strictly applies the Burlington Northern admonition that arranger liability requires an intent to dispose, and discards the Fifth Circuit’s earlier “nexus” test that was based on a totality of the circumstances. It also underscores the difficulty of proving CERCLA liability when the disposal – be it spillage or leakage – is ancillary to a legitimate sale of a useful product. Those facts must be accompanied by a motive to get rid of something, truly an intent to dispose of a hazardous substance, before “arranger” liability can attach.

Vine Street LLC v. Borg Warner Corp.

January 14, 2015

Marie Fiala (San Francisco) led the Sidley team that secured the victory for BorgWarner. Peter Steenland argued the case to the 5th Circuit, and Kenneth Kansa (Chicago), Jennifer Gaspar (San Francisco), Samuel Gutter (Washington D.C.) and Maggie Sobota (Chicago) assisted on the briefs.

 This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Ms. Fiala, Mr. Gutter, and Mr. Steenland  and may not reflect the opinions of Synergy Environmental, Inc., Sidley Austin LLP or either of those firms’ clients.

 

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