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Useful Product Defense Under CERCLA

One of the most fertile grounds for litigation under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) centers on interpreting what is known as the "arranger liability" clause. This portion of CERCLA, 42 U.S.C. § 9607(a)(3), provides that "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" assumes financial responsibility to remedy any harmful conditions they create via their disposal of hazardous materials. One consideration courts have employed to determine if a party "arranged for disposal or treatment" of a hazardous substance is whether a useful product was the subject of a bona fide sale.

Useful Product Consideration

In the case of RSR Corp. v. Avanti Development, Inc. , 68 F.Supp. 1119 (S.D. Ind. 1999), the court considered a suit for contribution for the cleanup of contamination caused by operation of a secondary smelting operation. Altar Barge Company sent lead plates to the secondary smelter that 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." The court first 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 motive for engaging in the transaction.

Since it was profitable for the defendant to send the lead plates to 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 the lead plates gave the smelter a less expensive alternative to purchasing new 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 examined 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. As the court noted, "[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. 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."

Legislation Affecting Future Arranger Liability Litigation

The whole issue of arranger liability, especially for materials akin to those in Avanti, has been complicated by the Superfund Recycling Equity Act (SREA). SREA exempts from arranger liability those who arranged for recycling of scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal, or spent batteries. Note that this legislation seems to obviate the need for the distinction made by the court in Avanti between lead plates and used batteries. One part of SREA likely to generate future litigation is the "due diligence" aspect of 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.

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