Useful Product Defense Under CERCLA


One of the most fertile grounds for litigation under CERCLA has been the interpretation of the phrase "any person who by contract, agreement or otherwise arranged for disposal or treatment of hazardous substances," better known as the "arranger liability clause." In the case of RSR Corp. v. Avanti Development, Inc., 69 F. Supp. 1119 (S.D. Ind. 1999), the court was faced with a suit for contribution for the cleanup of contamination caused by the operation of a secondary smelting operation. Altar Barge Company had sent to the secondary smelter lead plates that the defendant had extracted from used batteries. The question before it as framed by the court was "whether the delivery of lead plates truly constituted an arrangement for disposal of treatment, or whether it was a bona fide sale of a useful product." First the court looked at the subjective intent of both parties to the transaction, which required it to look at the following factors: the type of agreement arranged between the two parties; the benefits reaped by the parties as a result of the transaction; and the purpose and/or motive of the transaction. Since it was profitable for the defendant to send the lead plates to be a secondary smelter, the court found "it unlikely that Altar Barge intended its sale of the lead plates to an arrangement for the disposal or treatment of the hazardous material." Moreover, since the secondary smelter had solicited the business from defendant and it gave the smelter a less expensive alternative to purchasing newly mined lead, the court found it to be a reasonable inference "that Quemetco intended the arrangement with Altar Barge to be for a bona fide sale."

The court then went on to examine the transaction to determine whether the parties' intent was justifiable, i.e., whether the lead plates were in fact a commercially valuable product at the time of sale. The key finding for this determination was that the defendant did not sell used batteries. "A key factual distinction between the defendants in the cited cases and Altar Barge, which tips the balance away from finding Altar Barge liable, is that Altar Barge did not sell used batteries to reclaimers, nor were used batteries a by-product of its ordinary business. ...it was the lead plates, not the used batteries that were delivered to the Avanti site. This distinction is crucial to the useful product defense and for distinguishing between persons who sell a used product to dispose of it and those whose sale is a part of their profit-making ventures."

The whole issue of arranger liability, especially for materials like those discussed in the Avanti case, will undoubtedly be affected by the new Superfund Recycling Equity Act referred to in the last issue. That act exempts from arranger liability those who arrange for the recycling of scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal, or spent batteries. Note that this seems to obviate the need for the distinction made by the district court in the Avanti case between lead plates and used batteries. An aspect of the act which is likely to generate future litigation, is the "due diligence" part of the proof that must be made by the arranger in order to be exempt from liability. That provision requires the arranger to have exercised reasonable care to determine that the consuming facility was in compliance with substitutive provisions of applicable laws and regulations, compliance orders or decrees. In order to demonstrate reasonable care, the arranger must have made inquiries to appropriate federal, state and local environmental agencies regarding the consuming facility's compliance history.