Out with the old

When can the U.S. government force companies to pay up to half a million dollars just to prove they did nothing wrong? The federal Superfund law can drag innocent, law-abiding companies into a long and difficult legal process. Companies then must pay huge legal fees to get out of the loop. A recently enacted law may substantially reduce this burden for companies that deal in recyclable materials.

Superfund - presumed guilty

The federal Superfund law is more formally known as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended by the Superfund Amendments Reform Act of 1984 (collectively referred to as CERCLA), 42 United States Code (USC)§ 9601 et seq.

Under the Superfund law, designed to promote the clean up old hazardous waste sites, companies are -- in effect -- guilty until proven innocent. The law is also retroactive. This means companies can be found liable in the present for actions that were legal in the past.

The Superfund law imposes strict liability for hazardous substances that escape into the environment. A hazardous substance is any chemical found on the federal government's very long list of potentially dangerous substances. Strict liability means legal responsibility regardless of fault.

Strict liability is imposed on the current owner or operator of property even if they did not cause the contamination. Past owners or operators are strictly liable if contamination occurred during their tenure, even if they did not cause it. Strict liability is also imposed on those who arrange for disposal of and those who transport hazardous substances that later enter the environment. Again, this is the case even if the arranger or transporter did not spill any toxic chemicals.

Excessive legal costs of the Superfund process

When a Superfund site is found, every company that has sent any amount of waste to the site -- or ever owned or operated the site -- is automatically considered a potentially responsible party or PRP. Under the Superfund law, every PRP is liable for the full amount of money to clean up the entire site, no matter how much waste they sent. The average capital cost of cleaning up a non-federal facility Superfund site is $21.8 million (Congressional Research Service, Report No. 97-312 ENR, available at www.cnie.org/nle/waste-1print.html)

PRPs are forced to bargain down from the full amount by showing they sent little or no waste to the site -- or by showing how much waste they actually sent to the site. This proof is often hard to get, as the waste may have been dumped long ago. In either case, specific records are often nonexistent. Even if employees who were there at the time can be found, memories are often hazy.

After years of talk, PRPs make deals with the federal government. More often than not, however, PRPs who feel they paid more than their fair share will sue other PRPs to make up the difference.

A company's legal costs to work out its cleanup liability and to settle with the federal government, to collect insurance claims for cleanup costs and to battle other PRPs in court are astounding. In a 1994 survey, the U.S. Government Accounting Office (GAO) found the average total cleanup cost for a corporation was $1.5 million, of which each corporation spent an average of $500,000 on legal fees.

Superfund relief for recyclers

A complete overhaul of Superfund has been promised for at least five years, but Congress has not been able to come up with a new law that all sides can live with.

Congress knew that the Superfund law was bad for the recycling industry. Companies were reluctant to sell scrap materials to recyclers for fear of being caught in the Superfund net.

Many in Congress felt the recycling problem should be fixed only as part of a larger Superfund reform bill. A bipartisan team, however, was finally able to remove recyclable scrap materials from the liability loop. In November 1999, Congress amended the Superfund law to relieve companies that deal in recyclable materials (42 USC § 9627).

New recycling provisions

The amendment creates an exemption from Superfund liability for "any person who arranged for recycling of recyclable material." To qualify, two things must be proved. First, the material must fit the definition of "recyclable material." Second, the person seeking the exemption must have "arranged for recycling" of the material.

What material is recyclable?

The law defines "recyclable material" as scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal and spent batteries -- including lead-acid and nickel-cadmium batteries. It also includes minor amounts of material that might normally stick to such materials.

Recyclable material does not include shipping containers of 30 to 3,000 liters containing hazardous substances -- other than chemicals that make up the containers themselves. Any item that contained PCBs (polychlorinated biphenyls) in excess of 50 parts per million is also not a recyclable material.

What is arranging for recycling?

A transaction involving scrap paper, plastic, glass, textiles or rubber will be deemed "arranging for recycling" only if certain criteria are met at the time of the transaction. First, the material must have met a commercial specification grade. Second, a market must have existed for the material. Third, a substantial portion of the recyclable material had to have been made available for use as feedstock for the manufacture of a new saleable product. Finally, the recyclable material must have been able to be a replacement or substitute for a virgin raw material, or the product to be made from the recyclable material must have been able to be a replacement or substitute for a product made, in whole or in part, from a virgin raw material.

For transactions occurring after enactment of the new law, there is a fifth requirement. The person arranging to recycle must have exercised "reasonable care" to determine that the facility where the recyclable material would be handled or processed was in compliance with all applicable environmental laws and regulations. In determining "reasonable care" in these circumstances, the factors to be considered include the price paid in the recycling transaction, the ability to detect the nature of the recycling facility's operations and the result of inquiries made to appropriate environmental agencies regarding the facility's past and current compliance with environmental laws and regulations.

Transactions involving scrap metal are subject to two additional criteria in order to be protected. First, the arranger must have been in compliance with all applicable regulations and standards associated with the recycling of scrap metal under the federal Solid Waste Disposal Act. Second, the scrap metal must not have been melted before the transaction.

Transactions involving spent batteries are also subject to additional criteria to qualify for protection. First, the valuable components of the batteries must not have been recovered by the arranger. Second, the storage, handling and transport of spent batteries must have been in compliance with all applicable environmental laws and regulations.

Not surprisingly, Congress spelled out when a transaction that might otherwise qualify as arranging for recycling does not qualify for protection from liability; there are three exceptions.

Transactions involving recyclable material are not exempt from liability if at the time of the transaction:

  • The arranger has an "objectively reasonable basis" to believe the material would not be recycled, the material would be burned as fuel for energy recovery or incineration or that the recycling facility was not in compliance with the substantive provisions of all applicable environmental laws and regulations;
  • Hazardous substances had been added to the material for purposes other than processing for recycling; or
  • The arranger failed to exercise reasonable care with respect to the management and handling of the recyclable material, such as complying with customary industry practices designed to minimize contamination of the recyclable material by hazardous substances.

Benefits of the new law

The new recycling law is intended to benefit companies involved in recycling transactions by excluding them from liability they might otherwise have been subject to. It does not, however, protect such companies from being named as defendants by the federal government in a Superfund action.

If recyclers still have to prove they are entitled to the exemption, the savings in legal costs is questionable. The recycling community can only hope that government lawyers will think about whether the exemption applies before joining recycling companies in a Superfund action.

The law does protect recyclers from being sued by other PRPs for contribution. If a company can use the recycling exemption, the PRP who sued them has to pay the company's costs of fighting the action, including legal fees, expert witness fees and court costs.

The new law applies to past transactions, but not if those transactions were or are the subject of actions brought by the federal government that were concluded or pending before the law was enacted. The recycling exemption may be available, however, in contribution lawsuits between PRPs, even if the lawsuit existed before the new law was enacted. The majority of the few courts that have faced this question thus far have said the exemption is available in pending lawsuits initiated by private parties (e.g., Morton Int'l Inc. v. A.E. Staley Mfg. Co., 106 F.Supp.2d 737 D.N.J. 2000).

Another benefit is that recyclers now have a road map by which recycling transactions can be planned, structured and documented in order to minimize their risk of Superfund liability in the future.

Effect on state law

The recycling exemption is a new part of federal law. Most states have their own "mini-Superfund" laws that are sometimes even stricter than the federal Superfund law. According to Tracy Mattson, Director of Environmental Compliance at the Institute of Scrap Recycling Industries, Washington, D.C., none of the states have, as of this writing, enacted a similar recycling exemption, but several are examining the issue. Therefore, recyclers involved with a contaminated site under state enforcement should check state law for any similar provision affecting recycling transactions.

This article appeared in the February 2001 issue of Environmental Protection, Vol. 12, No. 2, on page 33.

This article originally appeared in the 02/01/2001 issue of Environmental Protection.

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