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The United States Court of Appeals for the Fifth Circuit held that a contractor has no “arranger” liability under the Superfund law (CERCLA) for unconsciously denting a methanol pipeline that several years later cracked, thereby resulting in the release of methanol and causing environmental damage.   In the absence of intentional steps or plans by the contractor to cause the disposal of a hazardous substance such as methanol, there is no CERCLA liability.

An employee operating a backhoe for a contractor, Martin K. Eby Construction Company unknowingly struck and dented a methanol pipeline belonging to the Celanese Corporation while installing an underground water pipeline.  In order to install part of the pipeline segment underneath the methanol pipeline, the contractor had to first uncover those pipelines.  While doing so, its backhoe operator struck and dented the pipeline without knowing it.  Years later, the dented areas of the pipe deteriorated and cracked, allowing methanol to leak from the pipe during methanol transfer.  The leak was discovered when a patch of dead grass along the pipeline was noticed.  Celanese worked with the state and federal agencies to clean up the site and prevent contamination of nearby groundwater.

Celanese sued the contractor under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Texas Solid Waste Disposal Act (SWDA) to recover its clean-up costs.  CERCLA, at 42 U.S.C. § 9607(a), imposes strict liability for environmental contamination upon four broad classes of potentially responsible parties (PRPs):

(1) the owner and operator of a vessel or a facility,

(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,

(3) 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 owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances, and

(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities, incineration vessels or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance ….

Celanese’s complaint that the contractor had liability under CERCLA and SWDA was based on the allegation that the contractor was an “arranger” as defined by the statutes.  In the lower court, it was found that the release of methanol at the site would not have occurred but for the damage to the pipeline by the contractor.  Despite the finding, however, the trial court found that the contractor was not liable as an arranger because it didn’t know it had damaged the pipeline and because the contractor was “not a person responsible for solid waste under the SWDA.”

On appeal, Celanese raised an argument it had not made in the trial below – that the contractor was liable for consciously disregarding an obligation to investigate what it hit in a pipeline corridor and rectify any damage.  The court of appeals refused to consider this argument since it was not raised below, and the sole issue to be decided on appeal was whether the trial court erred as a matter of law that there was no arranger liability.  But the court went on to state that even if the argument had been raised below, it is a losing one.  The court stated:  “We hold that Celanese’s consciously disregarded allegations do not establish arranger liability under CERCLA.”  This was because the court found that conscious disregard of a duty to investigate is not tantamount to intentionally taking steps to arrange for the disposal of methanol.

In reaching its decision in this case, Celanese Corporation v. Martin K. Eby Construction Company, 620 F.3d 529 (5th Cir. 2010), the Fifth Circuit relied heavily upon the decision of the U.S. Supreme Court in the case of Burlington Northern & Santa Fe Ry. Co. v. United States, 129 S.Ct. 1870 (2009) which held that an entity’s knowledge that its action will result in a spill or leak is insufficient, by itself, to establish arranger liability; instead, the entity must take “intentional steps” or “plan for” the disposal of the hazardous substance.  The Fifth Circuit concluded: “Hence, under Burlington, Eby is liable as an arranger only if it took intentional steps or planned to release methanol from the Celanese Pipeline.”  The record in the case, said the court, didn’t support a finding of intentional damage to the pipeline, but only showed that the backhoe operator knew it had struck something but didn’t know what.   In a nicely explained final summation the court explained its holding as follows:

“The district court found, and Celanese does not dispute, that Eby did not intentionally damage the pipeline. In fact, Eby did not even know that it had struck a pipeline; it only knew that it had struck something with a backhoe. Still, Celanese insists that Eby intentionally took steps to dispose of methanol by disregarding its obligations to investigate the incident and backfilling the excavated area where the incident had occurred. In other words, Celanese argues that Eby’s conscious disregard of its duty to investigate is tantamount to intentionally taking steps to dispose of methanol. Burlington, however, precludes liability under these circumstances. In Burlington, the Court declined to impose arranger liability for a defendant with more culpable mens rea. The defendant had actually arranged to ship hazardous chemicals under conditions that it knew would result in the spilling of a portion of the hazardous substance by the purchaser or common carrier. See Burlington, 129 S.Ct. at 1880. Given that there was no arranger liability under those circumstances, we fail to see how we can impose such liability here when Eby did not even know that it had struck the Celanese pipeline. Therefore, we hold that Eby is not liable as an arranger under CERCLA.”

Having found the contractor was not liabile for arranger liability under CERCLA, the court also held there to be no liability under the state statute, SWDA, since the Texas Supreme Court had instructed that the federal court should look to “federal case law for guidance in interpreting the term “otherwise arranged” to dispose of solid waste, which is not defined in either SWDA or CERLA.”

Comment: This is an important decision, applying the principles set forth by the U.S. Supreme Court in the case of Burlington Northern & Santa Fe Ry. Co. v. United States. It is refreshing to see that common sense and reason are being applied by the courts in interpreting these environmental statutes.  The federal and state environmental protection agencies misconstrued CERCLA for many years in lawsuits alleging strict liability against individuals and companies where there was no evidence of any intent or plan to arrange for the disposal of hazardous substances.  One of my early American Bar Association (ABA) presentations, after I left the U.S. Environmental Protection Agency (EPA) where I had been an attorney with the General Counsel’s Office for five years,  was entitled “Superfund:  Is it Super?  Does it Fund?”  My cynical conclusions expressed in my paper stood the test of time and are still good reading if you are so inclined.