CERCLA Rules In Transaction Dispute

When U.S. environmental statutes clash with state commercial transaction laws, the federal laws hold sway, according to a ruling by a federal district court in West Virginia. (U.S. v. Gordon Stafford Inc., No. 1:90-102, N.D. W.Va., Feb. 3, 1997.)

As a result, a buyer who claimed that he simply was attempting to return rightfully rejected goods to the seller, was held liable as an "arranger" under Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

Gary Powell owned Marion Engineering Co. which purchased electrical transformers in 1987 from Gordon Stafford Inc. Atlantic Richfield Co. (ARCO) had sold the transformers to Stafford four years earlier at a public auction in New Mexico, and Stafford shipped the items to West Virginia.

When it sold the transformers to Powell, the company assured him that they contained insignificant amounts of polychlorinated biphenyls (PCB). Shortly after delivery, however, Powell tested the transformers and discovered that they contained hazardous PCB levels.

Powell immediately notified Stafford that he rejected the transfer and demanded that the company promptly remove the goods from his property. Such notification, Powell later argued, was fully consistent with nationally recognized commercial practices and, for that matter, was required by state sales law.

Later, West Virginia environmental authorities discovered the transformers at a site in Harrison County and called in federal officials to supervise the cleanup.

Federal prosecutors charged Powell with various criminal violations of the Toxic Substances Control Act for his alleged tampering with the labels and conspiring in the the transformers' illegal disposal. A jury acquitted Powell of all charges in 1989.

The Department of Justice then sued ARCO, Stafford, Powell and related companies under CERCLA provisions that hold firms and individuals liable for site cleanup costs if they "arranged for disposal" of hazardous substances. In 1993, the district court dismissed the liability claims against ARCO after finding that the company's original sale to Stafford was not an "arrangement for disposal." ARCO successfully argued that when it sold the transformers to Stafford it was "merely a party to a transaction for a useful product" and thus, no disposal could be reasonably anticipated following the sale.

The government then sought a summary judgment against Powell personally for his role as an arranger for disposal. For his part, Powell, by promptly returning the non-conforming goods, claimed that he did nothing more than act reasonably and in conformity with standard business practices and state law.

Not so, said the judge who found that Powell "did much more than return the goods." As the district court saw it, Powell, an engineer, knowingly possessed transformers with hazardous PCB levels and "actually assisted in activities to conceal [their] ultimate disposal." Moreover, the court found Powell had "special knowledge" of the correct procedures for handling such substances and thus knew that Stafford's actions were unlawful.

Powell's downfall, according to the district court's opinion, occurred when he "overheard" Stafford employees talking about how to dispose of the transformers and when he helped remove labels from the transformers and assisted the employees in loading the transformers onto a truck.

If the transformers that Stafford delivered did not meet the contract specifications, Powell could not simply embrace the state commercial transactions law and ignore federal environmental regulations, the court said. The opinion cited evidence that Powell knew of the likelihood of a PCB release after he handed over the transformers.

Furthermore, the court warned that even someone who receives unsolicited goods that contain hazardous substances cannot merely ship the items back to the sender. What's expected under federal law, said the court, is prompt notification of state and federal environmental authorities - even more so when recipients know, or should know, that regulatory restrictions affect the handling of such substances.

The ruling is significant for its effect on acceptable - indeed, mandatory - behavior on the part of buyers in 49 states where the Uniform Commercial Codes governs sales transactions. As this federal district judge sees it, CERCLA transforms compliance with state-sanctioned business practices into cleanup responsibility.

Congressional Bill To Watch: H.R. 942: "Interstate Transportation of Municipal Solid Waste Act of 1997" and "Municipal Solid Waste Flow Control Act of 1997" would allow states to limit the interstate transportation of municipal solid waste and would authorize limited flow control by certain state and local governments. (Measures are linked.)

H.R. 943 "Municipal Solid Waste Flow Control Act of 1997" (Free-standing flow control authorization bill)