In Emhart Industries, Inc. v. New England Container Company, Inc., et al., No. 06-218 WES, 2022 WL 15437874 (D.R.I. Oct. 27, 2022), a federal court addressed the parameters for arranger liability under CERCLA where Defendants sent drums with residual hazardous substances for reconditioning.  The Court denied summary judgment for Defendants, finding liability depends on Defendant’s intent to dispose, which is a fact intensive analysis dependent “foremost on intentional steps Defendants took toward the goal of disposal, but also asks whether the product was useful, if Defendants knew of the hazardousness, and the state of the hazardous substances at the time of the transaction.”

Emhart Industries, Inc. (“Emhart”) has been found liable for contamination at the Centredale Manor Restoration Project superfund site in North Providence, Rhode Island, which is contaminated with dioxins, PCBs and other hazardous substances in soil, sediment, groundwater and surface water.  New England Container Company, Inc. (“NECC”) operated an incinerator-based drum reconditioning facility on a portion of the site.  The EPA issued a Unilateral Administrative Order to Emhart and Black & Decker in 2014, and Emhart filed suit against NECC and other defendants seeking cost recovery and contribution for the response costs Emhart incurred at the site. 

Defendants sent used 55-gallon steel drums to NECC for drum reconditioning, and Emhart argued they are liable as arrangers because they intended to dispose of residual hazardous substances at the Site.  Defendants filed motions for summary judgment arguing they are not “arrangers” and thus are not covered persons subject to liability under CERCLA.

An “arranger” is a party which “entered into [a sale] with the intention that at least a portion of the product be disposed of during the transfer process.”  Disposal is defined as the discharge, spilling or placing of “any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters . . . .”  42 U.S.C. § 6903(3).  Discussing Burlington Northern v. United States, 556 U.S. 599 (2009), as the seminal case on arranger liability, the Court held that liability attaches where entities “enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance but does not attach merely for selling 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.”  Where an entity falls on this spectrum requires a “fact-intensive, case specific analysis.”

While Defendants argued Emhart could not demonstrate they had any written agreement or contract for disposal of the hazardous substances, the Court held that the lack of a contract or agreement is not dispositive, as a party can be liable “if it understood disposal would be the result of its actions and took the conscious and intentional step of leaving [the disposer] to dispose of the materials.”  The Court further held that circumstantial evidence can be relied on to show intent, defendant need not control the method of contamination for liability to attach, and most importantly, “disposal need not be the only purpose of the transaction; instead, it may be one among several . . . . [A]ll that is required for arranger liability to attach is that disposal be an intended purpose of a transaction; it need not be the sole or even primary purpose of the transaction.” 

Emhart argued that in all drum reconditioning cases, the sole purpose of the transaction is to discard a used and no longer useful hazardous substance, thus arranger liability attaches.  The Court rejected this sweeping argument, stating a factual analysis is required as “[i]ntent to dispose focuses foremost on intentional steps Defendants took toward the goal of disposal, but also asks whether the product was useful, if Defendants knew of the hazardousness, and the state of the hazardous substances at the time of the transaction.”  While knowledge of disposal may not suffice, intent can be inferred “from the natural consequences” of defendant’s actions.

The Court then noted that arguments regarding Defendants’ intent to dispose fell into two categories: the amount of residue in the drums, and the economic arrangements between Defendants and NECC.  As to the amount of residue, the Court held that “[a]n inference about intent may be drawn from evidence of the drums’ emptiness.”  At the summary judgment stage, Emhart needed only show that a reasonable factfinder could find in its favor, and the Court held Emhart had met that burden by showing residues ranged from a coating to a quarter full, and by pointing to testimony by NECC stating that the purpose of the transaction was to clean and return dirty containers.  Defendants argued they attempted to mitigate disposal as NECC’s drivers were instructed to only pick up empty drums, but Emhart argued these mitigation efforts were not effective or non-existent, and the Court held “[w]hether Defendants’ acts in leaving residual amounts of solvents in the drums, if proven, supports an inference of purposeful or intentional disposal is a question for trial.”

As to economic arrangements, Emhart argued that almost all Defendants were dual customers and suppliers of NECC, meaning they sent drums to be reconditioned and received drums in return, and that certain defendants paid NECC a “servicing” or “laundering” fee.  The Court held that “[e]conomic arrangements between an accused arranger and a disposer are relevant evidence from which a reasonable factfinder can infer intent” and held the factfinder could conclude the Defendants were effectively paying NECC to dispose of the residuals in their drums.

Defendants argued that they were entitled to summary judgment based on the useful product doctrine, under which liability does not attach to those who sold a useful product for a useful purpose.  The Court first addressed what should be considered the “product” – i.e., whether the hazardous material could be separated from the overall product.  The Court held that because the hazardous material cannot be easily severed from the sale, used drums with the residues are considered the “product”.  The Court next addressed whether used drums with residues were viewed as useful by the Defendants.  Defendants argued there is a competitive used steel drum market, therefore the products are useful, but the Court held that “receiving compensation is not necessarily the end of the inquiry” and Defendants “seemingly understood that not all of the used drums would be useful to NECC.” Even if a competitive market exists for used drums, the Court noted that such a market may exist not because the products are useful, but because “the drums are unusable to the companies in their existing state.”  The Court held Emhart should have the opportunity to present expert, witness and industry evidence about the used drum market and the commercial value of the drums.  As “a reasonable factfinder could conclude that the drums contained residues – leftover nuisances diminishing the overall value – which served no discernable purpose to the defendants”, the jury could find product was not useful.   Accordingly, based on the above analysis of the factors relevant to arranger liability, the Court denied Defendants’ motions for summary judgment.

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