Fourth Circuit Unanimously Declines to Rehear Ruling Upholding Strict Liability for Arrangers Under CERCLA
On July 23, the U.S. Court of Appeals for the Fourth Circuit denied a petition for rehearing in 68th Street Site Work Group v. Alban Tractor Co., Inc., et al., 4th Cir., No. 23-01155, declining the opportunity to potentially narrow “arranger liability” under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA).
Background: District Court’s Dismissal Decision and Fourth Circuit’s Reversal
The denial of rehearing comes about a month after a three-judge panel reversed two district court rulings dismissing claims against arranger defendants in 2022. The district court held that arranger liability under CERCLA required scienter, i.e., that the defendant intentionally arranged for the disposal of material knowing the material contained hazardous substances. Finding no allegation of scienter in the complaint, and not allowing the plaintiffs to amend their complaint, the district court dismissed the claims against the arranger defendants.
In reversing the district court’s decisions, the Fourth Circuit panel noted that “whether [CERCLA] imposes a knowledge requirement is an issue of first impression for the appellate courts.” The panel then analyzed a Supreme Court decision, Burlington Northern & Santa Fe Railway Co. v. United States (Burlington Northern), and a 1988 Fourth Circuit decision, United States v. Monsanto. Burlington Northern provides that “an entity may qualify as an arranger under [CERCLA] when it takes intentional steps to dispose of a hazardous substance.” The panel found, however, that Burlington Northern did not dictate the outcome in this appeal, because it centered on the alleged arranger’s knowledge and intent to have a hazardous substance disposed of, not whether the arranger knew the intentionally disposed substance was hazardous.
The panel also noted that previous Fourth Circuit cases interpreting arranger liability “have uniformly assumed a substance was hazardous without looking to the alleged arranger’s knowledge,” including Consolidation Coal Co. v. Georgia Power Co. (More on Consolidation Coal below.) Citing United States v. Monsanto, the panel explained that CERCLA is ordinarily a strict liability scheme with narrow, specific exemptions to liability. The panel also noted that “Congress intended the statute to serve a broad remedial purpose,” and that Congress deliberately did not include “knew or should have known” language to the subsection concerning arranger liability—other CERCLA provisions and exemptions include this sort of scienter language. Against this backdrop, the panel held that these arranger defendants could be held responsible for cleanup costs even if they did not know the waste was hazardous when they arranged for its disposal.
Petition For Rehearing Argued That the Panel Misinterpreted CERCLA and Burlington Northern and Created Tension With Consolidation Coal
The arranger defendants’ petition for rehearing argued that the panel’s opinion misinterpreted the statutory text of CERCLA and Burlington Northern and was out of line with Consolidation Coal. The full Fourth Circuit evidently did not agree, declining to revisit the three-judge panel’s holding that Burlington Northern did not apply here, and that the ambiguity contained in CERCLA’s text was resolved in favor of furthering the law’s strict liability scheme.
Regarding the purported discordance between this case and Consolidation Coal, the arranger defendants argued that Consolidation Coal held that “knowledge of the hazardous nature of the substance being disposed of is at the heart of arranger liability.” As the Fourth Circuit made clear, Consolidation Coal concerned selling and transferring operational, non-leaking electrical transformers containing polychlorinated biphenyls (PCBs) – indisputably a hazardous substance. In that case, the Fourth Circuit noted that the seller (defendant Georgia Power Co.) was not aware of what the buyers would do with the PCB-containing transformers after the sale and transfer. The Fourth Circuit held the record in that case had “no evidence that any form of ‘disposal’ under CERCLA occurred during the transformers’ transfer.” Instead of holding the seller liable as an arranger under CERCLA, the Fourth Circuit upheld the trial court’s summary judgment dismissal: “Given Georgia Power’s clear intent to sell a valuable product on a competitive market, and its lack of specific knowledge regarding how [the buyer] would process the transformers, the ‘knowledge’ factor is of no aid to [plaintiffs]. . . . In sum, [plaintiffs] fail under Burlington[.]” Thus, knowledge of the hazardous nature of the substances contained in the transformers was not a material issue in Consolidation Coal.
The arranger defendants’ petition further warned that the panel’s opinion could cause “tremendous practical consequence to defendant businesses in CERCLA lawsuits across the country.” The ramifications of this decision on other CERCLA lawsuits have yet to be revealed. This argument did not move the Fourth Circuit’s judges to act.
Implications for CERCLA Liability
While no doubt the lower court decisions caused eyebrows to raise among legal professionals and stakeholders in contaminated site cleanups, the Fourth Circuit’s rejection of a scienter element to the arranger liability scheme maintains the broad and strict scope of liability that courts for years have found aligns with CERCLA’s remedial purpose of promoting environmental cleanup and responsibility. Beyond the issue of CERCLA arranger liability, the case also provides a reminder that district courts sometimes give fresh looks to longstanding standards and precedents.
