By David Darr

Today, in the civil case of Consolidated Coal Co. v. Georgia Power Co., a published opinion, the Fourth Circuit established that a seller of items containing hazardous materials is not liable for contribution of the cleanup of those materials under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) if its subjective intent was to sell those items as opposed to disposing of the hazardous materials. Because the Eastern District of North Carolina did not err in deciding that Georgia Power did not arrange its transformers for disposal under CERCLA, and that there were no genuine issues of material fact, the Fourth Circuit affirmed the order of the District Court granting summary judgment in favor of the Georgia Power.

Appellants Contended that Georgia Power’s Intent Was to Arrange for the Disposal of Hazardous Materials

The appellants argued that the District Court erred in granting summary judgment in favor of Georgia Power because Georgia Power had the dual intent of gaining revenue and disposing of toxic waste when they sold electrical transformers, arguing that this dual intent creates the intent necessary for arranger liability under CERCLA.

History of Georgia Power’s Sale of Transformers to Ward and the Proceedings Below

Georgia Power, appellee, sold its used electrical transformers in the early 1980’s via auctions. These electrical transformers contained polychlorinated biphenyls (“PCBs”), which are known carcinogens and have been banned since 1979. CERCLA governs the liability of parties who are disposing of PCBs. Before selling used transformers at auction, Georgia Power would inspect the oil inside the transformers for the PCB content to determine if the Toxic Substance Control Act of 1976 (“TSCA”) prevented it from selling the transformers for reuse. If the oil contained over 50 ppm, then the transformers could not be sold for reuse. For the transformers that Georgia Power sold at auction, it usually removed all of the PCB-containing oil, except for a thin coating of oil inside the transformer to prevent moisture damage that could make the transformers unfit for reuse. However, sometimes Georgia Power left the oil inside of the transformer when it was sold or left the caps off the transformers, exposing them to potential moisture damage. Georgia Power referred to this auction process as “scrapping” the transformers, but made in clear that scrapped transformers are “actually sold.”

Ward Transformer Company (“Ward”) purchased 101 used Georgia Power transformers that needed repair from 1983 to 1984. Ward ran a business reconditioning damaged or used transformers and reselling them. Ward stored and repaired the transformers it purchased to customer specifications at its facility in Raleigh (“Ward Site”). Ward made a profit off of these sales. Ward Site is now on the Environmental Protection Agency’s (“EPA’s”) National Priorities List due to PCB contamination from the oil in Ward’s transformers, and in 2004, the EPA ordered a removal action, which resulted in the removal of over 400,000 tons of contaminated soil. Consolidated Coal Company (“Consol”), PCS Phosphate Company (“PCS”), and Duke Energy Progress (“Duke”), appellants, have been required to bear the brunt of the removal costs, costing Consol and PCS more than $17 million.

In 2008 and 2009, Consol and Duke filed complaints against from Georgia Power, PCS, and other defendants in the Eastern District of North Carolina for contribution costs under CERCLA. The district court consolidated these actions. PCS counterclaimed against Consol and Duke, and cross-claimed for CERCLA contribution against the other defendants, including Georgia Power. Consol, PCS, and Duke all claimed that Georgia Power “arranged for disposal” of PCBs and thus it was liable for contribution under CERCLA at 42 U.S.C. § 9607(a)(3). The parties agreed to use the actions against Georgia Power as a test case and stayed the actions against all the other defendants. Georgia Power moved for summary judgment, and the District Court granted the motion. The court found that there was not intent to create arranger liability under CERCLA because the transformers were still useful when sold, as evidenced by Ward’s ability to make money out of reselling them. PCS and Consol appealed.

CERCLA and Arranger Liability

CERCLA allows for contribution liability when an entity arranges hazardous materials, one of which is PCB, for disposal. The question of whether a seller arranges hazardous material for disposal is a question to be decided on a case-by-case basis. In the absence of direct evidence of the intent to sell hazardous materials for disposal, the Fourth Circuit uses a four factor test formed in Pneumo Abex Corp. v. High Point, Thomasville & Denton Railroad Co. that weighs (1) whether the intent of the buyer was to reuse the hazardous materials or to dispose of the hazardous materials before reuse; (2) the value that the hazardous materials sold for; (3) the usefulness of the hazardous materials in the condition they were sold in; and (4) whether the hazardous materials were leaking or loose at the time of transferral. The Supreme Court’s decision in Burlington Northern & Santa Fe Railway Co. v. United States also caused to court to add another element to this test requiring that the seller has to have something more than mere knowledge that some disposal may occur as a collateral consequence of the sale. This “something more” includes intentional steps to dispose of the hazardous material beyond what is inherent to the sale, and it is a fact-intensive inquiry. Because this is an appeal from a summary judgment, the standard of review is de novo, and there has be a genuine issue of material fact that could cause a reasonable finder of fact to decide for the nonmoving party.

Georgia Power Did Not Have Arranger Liability Under CERCLA

The Fourth Circuit first decided that there was no direct evidence that Georgia Power intended the sale of its transformers to be a disposal of PCBs under CERCLA. The court dismissed the appellants’ argument that Georgia Power’s references to auctioning transformers as “scrapping” them meant that Georgia Power intended to dispose of the transformers. The court noted that Georgia Power specified in one document that “scrapping” meant “actually sold.” The court also dismissed the appellants’ argument that Georgia Power testing the concentration of PCBs in the transformers before sale was direct evidence that the sale was intended to dispose of PCBs. The Fourth Circuit saw this as merely complying with the TSCA and having nothing to do with disposing of PCBs via sale.

Deciding that there was no direct evidence of intent to sell the transformers for disposal of PCBs, the Fourth Circuit turned to circumstantial evidence and its Pneumo Abex four-factor test, as modified by Burlington. The court found that the first Pneumo Abex factor (reuse of the hazardous material versus the hazardous material being necessary to dispose of before reuse) weighed against the appellants. The appellants claimed this factor weighed in their favor because the transformer shells were what Ward wanted, not the oil containing PCBs contained within the shells. The court did not buy this argument because there was no evidence that showed that Ward ever intended to separate the oil from the transformers, and that separation of the oil from the transformers was likely impracticable. The court also noted that Ward resold entire transformers, not merely scrapping them, and that there was no evidence that showed that Georgia Power thought that Ward would do anything other than reuse the entire transformers after it bought them.

The Fourth Circuit also found that the second Pneumo Abex factor, considering the value of the materials sold, weighed against the appellants. The appellants argued that Ward sold the transformers in spite of the PCBs, not because of them. However, the court found that Ward was able to sell the transformers at a profit as particularly important to this factor. Additionally, the court reasoned that without the oil the transformers would have lost value because they could be damaged by moisture.

The Fourth Circuit also found that the third Pneumo Abex factor, concerning the usefulness of the materials as sold, weighed against the appellants. The appellants argued that the PCB content in the transformers was not useful and was undesirable. The court did not buy this argument because the transformers continued to be used after Ward reconditioned them and there was nothing in the record that showed that their use was affected negatively by PCBs.

The Fourth Circuit also found the fourth Pneumo Abex factor, concerning whether hazardous materials were leaking at the time of the transaction, to weigh against the appellants. The appellants argued that, while the transformers were not leaking when transferred, they were equivalent to a leaking transformer because of Ward’s intended use. The court disagreed and required actual leaking for this factor.

Finally, due to Burlington, the court added an additional element, which required something more than knowledge that some disposal would occur as a result of the transaction, to its test. The court also found this element to weigh against the appellants. The appellants argued that Georgia power knew that Ward could spill PCBs while rebuilding the transformers. The court did not buy this argument because there was no evidence that showed that Georgia Power would think that Ward would spill the oil in the process of reconditioning the transformers, and there was no evidence of something more than knowledge either. Due to all these factors weighing in Georgia Power’s favor, the Fourth Circuit found that there was no circumstantial evidence pointing to Georgia Power’s intent to dispose of PCBs, as opposed to selling of its used transformers. Therefore, the Fourth Circuit ruled that Georgia Power did not have arranger liability under CERCLA.

Fourth Circuit Affirmed Summary Judgment in Favor of Georgia Power

The Fourth Circuit affirmed, holding that there was no genuine issue of material fact that could cause a reasonable finder of fact to determine that Georgia Power had arranger liability under CERCLA.

Dissent Argued that Intent Was an Issue for a Trier of Fact

Judge Wynn dissented, arguing that the case should have been sent back to the District Court to determine what Georgia Power’s intent was when it the sold the transformers. Judge Wynn thought that CERCLA should have been given a broad interpretation because it was a remedial statute. The definition of “arrange” in CERCLA should therefore be looked at broadly. He also distinguished the Supreme Court’s decision in Burlington from this case because Burlington was the result of a lengthy trial not a summary judgment. Judge Wynn then looked at United States v. Cello-Foil Products, Inc., which the Supreme Court used to reach their decision in Burlington. Cello-Foil overturned an arranger liability decision because the district court used summary judgment, as opposed to a trial, to decide intent. Judge Wynn then cited Fourth Circuit precedent saying that intent is an issue that is typically left up to the trier of fact. Judge Wynn disagreed with the majority that no reasonable finder of fact could infer that Georgia Power intended to dispose of PCB-containing oil when it sold its transformers to Ward. Therefore, viewing the facts in the light most favorable to the appellant, Judge Wynn would have reversed and sent this case back to the district court for trial.