The Government’s Scope of Operator Liability Under § 107(a) of CERCLA
In a recent decision in PPG Indus. Inc. v. United States, 957 F.3d 395 (3d Cir. 2020), the Third Circuit upheld the district court’s finding that the government’s exercise of wartime controls of a chromium processing plant was insufficient to hold the government liable as an “operator” under Section 107(a) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Beginning in around 1915, the site in question was operated by Natural Products Refining Corporation as a chemical plant, processing chromite ore into chromium chemicals, which were used for dyeing cloth and tanning leather. The process generated hazardous materials as waste byproducts that were stockpiled outside and uncovered. As a result, the hazardous substances seeped into the surrounding soil and groundwater.
During World War I and World War II, the government designated chromium chemicals as “critical” war materials and implemented several controls, including price controls, labor controls and production controls. For price controls, the government controlled the price of the raw materials, the quantities of chromite ore that could be bought, to whom they could sell, how much they could sell and which of their purchase orders had priority. The orders, however, did not direct how the ores were to be processed, how the chromium was made or how it was handled.
As for labor controls, the government took various measures to prevent labor shortages, including efforts to improve working conditions, authorizing wage increases and calling in the Army to seize plants where workers were on strike. There was, however, no evidence that the Natural Products Refining site was ever seized by the government. As part of this effort, a suggestion was made by Army personnel that the Natural Products Refining site be operated seven days per week, rather than six. That change was subsequently implemented. Beginning in 1944, the Natural Products Refining site began operating on a seven-day work week.
With regard to production controls, the record showed three proposals were considered to increase production. The first was to run the ore through the manufacturing process fewer times. This would decrease production times but would increase waste, since it left chromium in the waste sludge that would have otherwise been extracted in successive runs. Part of this option included a subsidy to help offset the cost of the more wasteful processing of the ore. However, the subsidy was later rejected by another federal entity. Notwithstanding this, the record showed that Natural Products Refining did switch to the more wasteful process.
The second option was to use more expensive Russian ore. In order to offset the increased cost of the ore, another subsidy was proposed. This subsidy was actually passed. The record, however, showed that Natural Products Refining rejected this option and never received any such subsidies.
The final option was to expand plant capacity. The chromium chemical manufacturers generally opposed this option because they did not want new competition and, instead, tried to expand production. Natural Products Refining did initially secure government funding for an expansion but later decided against it.
The plaintiff, PPG Industries, Inc., bought the site from Natural Products Refining in 1954 and operated it in essentially in the same manner as Natural Products Refining had done until 1963. Since 1990, PPG Industries alleges it has spent $367 million remediating the site and surrounding areas. In 2012, PPG Industries sued the government under Section 107(a) of CERCLA, alleging that its wartime controls over the site rendered it an “operator” of the site. PPG Industries moved for summary judgment on the issue, and the government cross-moved. The District Court denied PPG Industries’ motion and granted the government’s cross-motion. The District Court found that the government’s actions were consistent with general wartime influence over an industry and did not extend influence over the plant’s pollution-related activities. Thus, the District Court found that such activities were insufficient for operator liability under CERCLA.
In upholding the District Court’s decision, the Third Circuit clarified the proper standard to be applied in cases involving CERCLA liability under Section 107(a). The standard, according to the Third Circuit, (1) focuses on the relationship between the purported operator and the facility at issue and (2) further focuses on operations specifically related to pollution. Thus, the Third Circuit held that operator liability only extends to those who “manage, direct, or control operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste or decisions about compliance with environmental regulations.” The court clarified that, under this standard, something more is required than “general control over an industry or facility – it requires some indicia of control over the facility’s polluting activities.”
Under this standard, the court held that general wartime control over an industry is insufficient. Specifically, in the case before it, the court found that the government did not control any operations related to pollution. The court noted that while the government did exert control over various aspects of the manufacturing process, such as the price of raw materials, the quantities of chromite ore that processors such as Natural Products Refining could buy, to whom they could sell, how much they could sell and which purchase orders had priority, it had no involvement and exerted no control over the pollution-causing activities. For example, the court noted that there was no evidence that the government was responsible for the practice of stockpiling the hazardous waste byproducts from the manufacturing process.
The court rejected PPG Industries’ argument that there was a “nexus” between the government’s activities and “waste-disposal matters” at the site on the basis that the overall process, which the government was familiar with, was inherently hazardous-waste producing. The court held that mere knowledge of a hazardous waste-producing activity is not sufficient. For CERCLA operator liability to attach, the alleged operator must “manage, direct, or conduct operations specifically related to pollution.”
The court also rejected PPG Industries’ argument regarding a nexus due to the fact that the government directed Natural Products Refining to switch to a quicker, more wasteful manufacturing process. The record showed that the government did not force Natural Products Refining to make the switch but, instead, only “recommended” that the change be made.
Lastly, the court rejected PPG Industries’ nexus argument on the basis of an alleged sludge subsidy provided by the government to Natural Products Refining. The record showed that no such subsidy was actually provided. Therefore, there was no evidence that the government purchased the hazardous waste sludge.
As a result, the Third Circuit upheld the District Court’s decision finding that the government never specifically managed or conducted Natural Products Refining’s operations related to pollution. The District Court correctly found that the government’s actions in relation to Natural Products Refining’s plant were consistent with general wartime influence over an industry – not control over Natural Products Refining’s pollution-related actives.
In its holding, the court distinguished a similar case involving claims of operator liability against the government, FMC Corp. v. United States Department of Commerce, 29 F.3d 833 (3d Cir. 1994). There, the government: (1) built and retained ownership of new facilities near the plant; (2) had a representative on site; (3) ordered the facility to produce a different product; and (4) supplied employees to install equipment. Thus, the court noted that, in FMC, “the government effectively seized total control of the plant’s operations by requiring the manufacturer to convert its plant to produce a different product and stepping in to help it achieve this goal, which included involvement in waste disposal.” This was different from the present case where Natural Products Refining was free to produce chromium before and after the wars, there was no government representative on site, the government was much less involved in labor decisions and the government was not at all involved in waste disposal decisions. Lastly, rather than being directed by the government to employ a specific method for increasing output, Natural Products Refining chose the option that was most convenient for it.
The PPG Industries case clarifies the outer bounds of operator liability under Section 107(a) of CERCLA. Importantly, it shows that operator liability only extends to those who “manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with leakage or disposal of hazardous waste or decisions about compliance with environmental regulations,” and that general control over an industry, or even a specific facility, will not be enough. In order to prevail on such claims, an indicia of control over the facility’s polluting activities is required. Therefore, general wartime control over an industry will be an insufficient basis upon which to hold the government liable.
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