No Arranger Liability for Used Transformer Sales

Posted on June 6, 2013 by Thomas Lavender

On May 1, 2013, the United States District Court, Eastern District of North Carolina, entered final judgment on a January 31, 2013 ruling on summary judgment  in favor of Defendant Georgia Power holding that the sale of used transformers did not constitute an arrangement for disposal under CERCLA Section 107.  The May 1 order afforded the opportunity to appeal, which plaintiffs Consolidation Coal Co. (“Consol”) and PCS Phosphate Co. (“PCS”) promptly filed earlier this month. 

In 2005, Carolina Power & Light Company (now Duke Energy Progress, Inc.) (“CP&L”) and Consol entered into an administrative settlement with EPA to perform a time-critical removal action of PCB contamination at the Ward Transformer Company Superfund Site (“Site”) in Raleigh, North Carolina, and to reimburse EPA for its removal costs at the Site.  PCS entered into a trust agreement with CP&L and Consol to contribute to the funding of the removal action required under the Administrative Settlement with EPA.  The plaintiffs and PCS are seeking recovery of costs incurred by the companies at the Site, which to date exceed $60,000,000. 

In its January 31, 2013 ruling, the district court found that Georgia Power’s sale of used transformers to Ward Transformer Company did not constitute an arrangement for disposal under the United States Supreme Court ruling in United States v. Burlington Northern & Santa Fe Railway Co.  In Burlington Northern, the Court held that a finding of arranger liability requires a showing that the defendant took “intentional steps to dispose of hazardous substance.”  The Court further held that a determination of whether arranger liability attaches is a “fact intensive and case specific” inquiry. 

In ruling that Georgia Power did not have the requisite intent to dispose of PCBs when it sold used transformers to Ward Transformer, the district court made the following findings: (1) the transformers were sold in arms-length transactions; (2) they had “marketable value” (between $150 and $3200) when sold; (3) they continued to be “useful materials” after the sale, as demonstrated by the fact that they were refurbished and resold by Ward Transformer for a profit; and (4) Georgia Power drained and disposed of PCB-laden oil in the transformers before selling them.  The court thus held:  “Georgia Power’s purpose for these transactions was to sell transformers to Ward and not dispose of the oil containing hazardous waste. . . . Therefore, Georgia Power had met its burden on summary judgment by showing it did not have the necessary intent to create arranger liability under CERCLA.”  

In Burlington Northern, the Supreme defined the “two extremes” in which intent to dispose required for arranger liability is clear.  At one end of the spectrum, arranger liability clearly attaches when a party enters into a transaction “for the sole purpose of discarding a used and no longer useful hazardous substance.”  At the other end, no arranger liability attaches when a party sells “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.”  The Supreme Court left open the determination of liability based on a “fact intensive inquiry” in “cases in which the seller has some knowledge of the buyers’ planned disposal or whose motives for the ‘sale’ of a hazardous substance are less than clear.”  The Fourth Circuit will now have the opportunity to shuffle the “sales” category deck in the Ward Transformer case and provide further guidance on those factual determinations which fall between the two extremes identified by the Burlington Northern Court.



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