Last month, the U.S. District Court for the Southern District of Iowa ruled that Dico, Inc. and its corporate affiliate Titan Tire Corporation (collectively, “Dico”) intended to arrange for the disposal of hazardous substances in violation of CERCLA when it knowingly sold multiple buildings contaminated with PCBs with the understanding that the purchaser intended to reuse only the buildings’ steel beams and dispose of the remaining materials. United States v. Dico, Inc., No. 4:10-cv-00503, 2017 U.S. Dist. LEXIS 151580 (S.D. Iowa Sep. 5, 2017).  The decision came after the Eight Circuit Court of Appeals reversed and remanded the lower court’s earlier ruling on summary judgment that Dico was liable as an arranger under CERCLA for the sale of the PCB-laden buildings.  In the appellate decision, which we blogged about here, the Court of Appeals held that the issue of whether Dico intended to dispose of the hazardous substances through the sale was the central question in determining whether CERCLA arranger liability applied and should not have been decided at the summary judgment stage.  That decision, as summarized in our blog, discusses the legal framework of CERCLA arranger liability and the “useful product defense,” which prevents a seller of a useful product from being subject to such liability, even when the product itself is a hazardous substance that requires future disposal. 

In 1994, PCBs were discovered in buildings owned by Dico in Des Moines, Iowa and as a result, EPA issued a Unilateral Administrative Order requiring Dico to address the contamination by, among other things, encapsulating the PCB-containing insulation, and to regularly report to the EPA on the integrity of the encapsulation.  Despite the existence of this order, in 2007, Dico sold the buildings to SIM, knowing that intended to demolish the buildings and retain only the steel beams, without notifying SIM that the buildings were contaminated.  Thus, as anticipated, SIM moved the steel beams, which were contaminated with PCBs from the insulation, to its own facility without taking any precautions or arranging for proper disposal of the insulation, resulting in the contamination of SIM's own property.   Initially, the trial court granted summary judgment, finding that Dico was an arranger subject to liability under CERCLA, but the Eighth Circuit reversed and remanded the case, holding that whether an entity was an arranger was a question of fact concerning, among other things, intent, and thus inappropriate for summary judgment.

In a lengthy opinion, including 63 pages of findings of fact  summarizing the testimony of numerous witnesses and providing a detailed timeline of events, Judge Robert W. Pratt outlined what he considered to be the key issues  in determining that Dico intended to dispose of PCBs through the sale: (1) Dico’s knowledge of the contamination and SIM’s intent to demolish the buildings; (2) the usefulness and commercial value of the buildings; (3) and the value received from the sale compared to the avoided costs of disposal or remediation.

First, Judge Pratt found that the officers and key employees of Dico knew the buildings were contaminated and subject to an EPA order. These Dico personnel also knew that SIM intended to demolish the buildings and dispose of most of the building material, including the contaminated insulation.  The judge concluded this knowledge evidenced that Dico intended to dispose of the hazardous substance.  Next, the judge found that while the buildings themselves lacked commercial usefulness in their state of disrepair and were not legally fit for their intended purpose as manufacturing or warehouse facilities and the commercial value of the beams was impacted by the fact that they could not be safely or legally reused without necessary sampling and decontamination, they did have substantial commercial value, and thus the judge concluded those facts weighed slightly in favor of determining Dico did not intend to arrange the disposal of a hazardous substance.  Finally, however, the judge found that Dico intentionally avoided the expense of properly disposing of or remediating the contamination, which would have cost “at least ten times” the amount that Dico received for the buildings through the sale.  These facts provided “strong evidence” of Dico’s intent to avoid environmental liability through the sale of the contaminated buildings.

The judge also highlighted several additional facts which, “taken together and alongside the evidence as a whole,” suggested Dico intended to dispose of the PCBs. Dico did not conduct the type of  environmental due diligence prior to the sale that the court said were "industry standard [of] sellers of industrial buildings," particularly given that Dico's counsel and numerous employees knew the buildings were contaminated and subject to EPA’s order.  Further, Dico never informed SIM during the sale process that the buildings were contaminated, even when SIM was dismantling the buildings on Dico’s property (Dico informed SIM the buildings were contaminated two months after the dismantlement process and only upon learning that an employee had taken some of the contaminated insulation to their home.)  The judge found this evidence suggested that Dico intended to deceive SIM regarding the contamination in an effort to dispose of it.  Finally, Dico made no effort to market the buildings at the highest price or solicit bids, and even sold the buildings for less than what Dico claimed they were worth. 

In concluding that Dico intended to arrange for the disposal of the PCB-laden material, the judge determined that Dico “seized the opportunity to offload the contaminated buildings onto SIM” and, in doing so, “chose to disregard the risks to human health and the environment that dismantling the contaminated buildings without proper precautions entailed.” The judge found that this type of arrangement was “precisely” the kind of behavior that CERCLA was meant to discourage.  After finding Dico liable as an arranger under CERCLA, the judge awarded EPA its response costs of $5.4 million and also assessed punitive damages equal to the same amount, resulting in an almost $11 million judgment against Dico.      

At 109 pages in length, this case provides an ample illustration of the type of in-depth fact finding we are likely to see more and more of, as appellate courts continue to emphasize the need for fact-specific inquiries in addressing a variety of issues that arise in CERCLA litigation, arranger liability being just one of them.. 

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