Vine St. LLC v. Borg Warner Corp.

• Decision Date: 14 January 2015
• Docket Number: No. 07–40440.,07–40440.
• Citation: 776 F.3d 312
• Parties: VINE STREET LLC, Plaintiff–Appellee v. BORG WARNER CORP; Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

776 F.3d 312

VINE STREET LLC, Plaintiff–Appellee

v.BORG WARNER CORP; Defendant–Appellant.

No. 07–40440.

United States Court of Appeals, Fifth Circuit.

Jan. 14, 2015.

Robert Scott Davis, Esq., Flowers Davis, P.L.L.C., Tyler, TX, for Plaintiff–Appellee.

Marie L. Fiala, Sidley Austin, L.L.P., San Francisco, CA, Kenneth Carl Baker, Baker & Patterson, Houston, TX, Lisa Elizabeth Jones, Peter Richard Steenland, Jr., Counsel, Sidley Austin, L.L.P., Washington, DC, Kenneth P. Kansa, Sidley Austin, L.L.P., Chicago, IL, Matthew Lyle Rienstra, Austin, TX, for Defendant–Appellant.

Appeal from the United States District Court for the Eastern District of Texas.

Before KING, JOLLY, and COSTA, Circuit Judges.

Opinion

E. GRADY JOLLY, Circuit Judge:

This appeal requires us to address the scope of so-called “arranger liability” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9607(a)(3), and the Texas Solid Waste Disposal Act (“TSWDA”), Tex. Health & Safety Code § 361.271(a)(3), in the light of the Supreme Court's decision in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009). In 2006, some three years before the Supreme Court decided Burlington Northern, the district court held a bench trial and ruled that Borg Warner Corp. was liable to Vine Street LLC for 75% of the costs associated with cleaning up a plume of perchloroethylene, or “PERC,” that discharged from a dry cleaning business that operated from 1961 until 1975. The liability was associated with a former subsidiary of Borg Warner, Norge, which furnished dry cleaning equipment, design assistance, and an initial supply of PERC to the cleaning business.

On appeal, Borg Warner argues that it is not liable to Vine Street under either CERCLA or the TSWDA because Norge did not intend to dispose of PERC when it sold dry cleaning equipment and an initial supply of PERC to the cleaners. Vine Street, the current owner of the subject property, argues, however, that Borg Warner intentionally disposed of PERC into the ground because Norge knew that water separators designed to release wastewater, but not PERC, into the sewer were not completely effective. Additionally, Vine Street emphasizes that Norge, i.e., Borg Warner, played a key role in designing the dry cleaning facility, including connecting the equipment to drains that emptied into a sewer, and urges us to conclude that Norge's role in the design supports a finding of intent. After a full review of the parties' arguments and the record, we agree with Borg Warner and REVERSE and VACATE the district court's judgment and REMAND for entry of judgment in favor of Borg Warner.

I.

The environmental damage at issue in this litigation stems from the operation of a dry cleaning business on a piece of property in Tyler, Texas, from 1961 until 1975. The business, called “College Cleaners,” operated in collaboration with Norge, a former subsidiary of Borg Warner, to function as a “Norge Laundry & Cleaning Village” that offered customers self-service dry cleaning.¹ Norge sold six to eight dry cleaning machines to College Cleaners and provided an initial supply of PERC, the chemical used in the machines to clean the clothes.² Additionally, Norge provided support to College Cleaners, assisting with the design of the building, installing machines in the building, testing the machines before the opening, and assisting customers with the operation of machines at the opening. Particularly relevant to this appeal, the district court also determined that Norge designed the drainage system and connected the dry cleaning machines to the drains and sewer system.

As part of the drainage system, Norge equipped the dry cleaning machines with water separators that would release wastewater into the sewer and recycle PERC for future uses. These water separators were not completely effective, however, and some PERC discharged into the sewer along with the wastewater through Norge's water separators.³ PERC was expensive, however, and both College Cleaners and Norge took steps to preserve as much PERC as possible. College Cleaners employees handled the PERC with care to avoid unintended waste. Several years after College Cleaners opened, Norge also modified the design of its water separators to reduce any loss of PERC through the separators. From these facts, the district court concluded that when the pollution occurred, “neither party intended to allow the discharge of PERC into the ground.”

Some of College Cleaners' PERC ultimately escaped from the sewer system and entered the soil and groundwater, contaminating both the College Cleaners property and another neighboring property. Vine Street later acquired both pieces of property and learned of the PERC contamination. It applied to participate in the Texas Commission on Environmental Quality's voluntary cleanup program. To offset its costs, Vine Street filed suit against Borg Warner and a number of other defendants. The case against Borg Warner proceeded to a bench trial, and the district court held it responsible for 75% of the past, present, and future cleanup costs, along with a number of other expenses. Vine Street was responsible for the remainder.

Borg Warner filed a timely notice of appeal, but this case was stayed shortly after Borg Warner filed its initial brief because Fedders, another party to the action, declared bankruptcy. Fedders was subsequently dissolved in bankruptcy, and this appeal resumed after the conclusion of those proceedings.

II.

As this case proceeded to a bench trial, “this court reviews findings of fact for clear error and legal issues de novo. ” Delahoussaye v. Performance Energy Servs., L.L.C., 734 F.3d 389, 392 (5th Cir.2013). Borg Warner has not challenged any of the district court's factual findings on appeal, and thus this appeal turns on whether those facts support the district court's legal conclusion, namely that Borg Warner is a responsible person for purposes of CERCLA and the TSWDA. We address each statute in turn.

A.

To establish CERCLA liability, the plaintiff must show:

(1) that the site in question is a “facility” as defined in [42 U.S.C.] § 9601(9) ; (2) that the defendant is a responsible person under [42 U.S.C.] § 9607(a) ; (3) that a release or a threatened release of a hazardous substance has occurred; and (4) that the release or threatened release has caused the plaintiff to incur response costs.

Amoco Oil Co. v. Borden, Inc., 889 F.2d 664, 668 (5th Cir.1989). The parties agree that the only dispute is whether Borg Warner is a “responsible person” under the second prong of the analysis.⁴

The category of responsible persons under CERCLA applicable here is the “arranger” category, which extends to

any person who by contract, agreement, or otherwise arranged for disposal or treatment, or otherwise 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.

42 U.S.C. § 9607(a)(3). Borg Warner now concedes that its liability is co-extensive with Norge's, and thus our review focuses on Norge's actions. In order to resolve this appeal, we need only interpret the phrase “arranged for disposal ... of hazardous substances.” Id. We focus on the term “arrange,” which implies a scienter requirement, and the term “disposal,” which distinguishes between waste and useful products.

1.

a.

The Supreme Court recently clarified the standard applicable to CERCLA arranger claims in a case that bears a striking resemblance to the case before us. Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009). In Burlington Northern, an agricultural chemical distributor purchased several chemical products from Shell Oil Company. Id. at 602, 129 S.Ct. 1870. Shell transported the chemicals to the distributor by common carrier, and they were transferred on arrival from tanker trucks into a storage tank. The distributor would then move the storage tanks around its property. Id. at 603–604, 129 S.Ct. 1870. Leaks frequently occurred during each stage of these transfers, and, critically, Shell was aware of the frequent spills on the distributor's land. Id. Indeed, Shell developed additional protocols, including more detailed safety manuals and a discount program for distributors, to reduce spillage. Id. Despite Shell's efforts, the distributor's land became increasingly contaminated, and a number of parties to the cleanup sought to hold Shell liable as an arranger under § 9607(a)(3).

The Court in Burlington Northern first noted two hypotheticals at opposite ends of the arranger liability spectrum: (1) an entity is always liable under CERCLA if it enters into a transaction “for the sole purpose of discarding a used and no longer useful hazardous substance;” and (2) an entity is not liable under CERCLA “merely for selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination.” Id. at 610, 129 S.Ct. 1870. Difficult issues of arranger liability arise, however, under “the many permutations of ‘arrangements' that fall between these two extremes—cases in which the seller has some knowledge of the buyers' planned disposal or whose motives for the ‘sale’ of a hazardous substance are less than clear.” Id. Because there are so many permutations, the Court recognized that whether an entity is an arranger is often a fact-specific question. Id. It also emphasized, though, that arranger “liability may not extend beyond the limits of the statute itself.” Id.

Thus, the Court interpreted the term “arrange” to imply “action directed to a specific purpose” and held that “an entity may qualify as an arranger under § 9607(a)(3) when it takes...