NCR Corp. v. George A. Whiting Paper Co., 092514 FED7, 13-2631

Docket Nº:13-2447, 13-2522, 13-2568, 13-2570, 13-2572, 13-2605, 13-2606, 13-2607, 13-2631, 13-2645, 13-2866
Opinion Judge:Wood, Chief Judge.
Party Name:NCR Corporation, et al., Plaintiffs-Appellants, v. George A. Whiting Paper Company, et al., Defendants-Appellees.
Judge Panel:Before Wood, Chief Judge, and Kanne and Tinder, Circuit Judges.
Case Date:September 25, 2014
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

NCR Corporation, et al., Plaintiffs


George A. Whiting Paper Company, et al., Defendants-Appellees.

Nos. 13-2447, 13-2522, 13-2568, 13-2570, 13-2572, 13-2605, 13-2606, 13-2607, 13-2631, 13-2645, 13-2866

United States Court of Appeals, Seventh Circuit

September 25, 2014

Argued February 28, 2014

Appeals from the United States District Court for the Eastern District of Wisconsin. Nos. 08-cv-16, 08-cv-895 — William C. Griesbach, Chief Judge.

Before Wood, Chief Judge, and Kanne and Tinder, Circuit Judges.

Wood, Chief Judge.

The invention of carbonless copy paper by NCR Corporation in the mid-1950s solved a small problem and created a large one. Though it alleviated the messy side effects of carbon paper for those who wanted copies in the pre-photocopy era, over the next quarter-century it became clear that the cost of this convenience was large-scale environmental contamination. That is because, until the early 1970s, the substance coating the paper included polychlorinated biphenyls (PCBs), a highly toxic pollutant. In the course of producing the carbonless paper, large quantities of PCBs were dumped into the Lower Fox River in Wisconsin, the site of the paper's production. (References to the River in this opinion mean the Lower Fox, unless the context requires otherwise.) Recyclers poured yet more PCBs into the River. In time, the problem attracted the attention of the federal government, which, invoking the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (popularly known as the Superfund), eventually ordered the responsible parties to clean up the mess. See 42 U.S.C. § 9601 et seq. This case requires us to decide who should foot the considerable bill.

Once the Environmental Protection Agency (EPA) identifies the site of an environmental hazard that requires remediation under CERCLA, the statute's financial responsibility rules are triggered. CERCLA imposes a "pay-first, split-the-bill-later" regime. Any individual persons or corporations meeting certain statutory criteria can be required to pay for the cleanup. Anyone who paid can then recover contribution from other responsible parties in accordance with that entity's equitable share of the costs.

NCR was the exclusive manufacturer and seller of the emulsion that gave treated paper its "carbonless-copy" character during what the parties call the Production Period (1954 to 1971). That emulsion, unfortunately, used Aroclor 1242 as a solvent, and Aroclor 1242 is a PCB. Given its role in the pollution, NCR has thus far picked up the lion's share of the cleanup tab for the River site. In this action it seeks contribution from several other paper mills along the river. Those firms were in the recycling business; they bought NCR's leftover scraps of carbonless copy paper, washed the harmful chemicals off into the River, and recycled the pulp to make new paper. Several ancillary questions and counterclaims were raised along with N C R ' s contribution claim, and we will address each in turn. The main event, though, relates to the equitable allocation of costs.

The district court, after holding a first phase of discovery on the question of when each party became aware that the primary chemical ingredient of carbonless copy paper was harmful, held that NCR was not entitled to any equitable contribution from the paper mills. Worse than that, from NCR's vantage point, the court held that the mills had meritorious counterclaims for cost recovery from NCR. NCR appeals that decision, and the defendant recyclers cross-appeal a handful of matters decided against them. Before addressing these matters, we begin with some background about the cleanup effort.

I. Background Facts

The Lower Fox River begins at Lake Winnebago in northeastern Wisconsin and winds northeasterly for 39 miles until it discharges into Green Bay, which flows into Lake Michigan. For decades, the River has been to papermaking what Pittsburgh once was to steel: the heart of the industry, and home to the highest concentration of paper mills in the world. See Region 5 Cleanup Sites: Background, Environmental Protection Agency (Aug. 3, 2011), htm (all websites cited last accessed Sept. 24, 2014).

In addition to their infamous smell, paper mills produce a good deal of solid byproduct, which they long disposed of by dumping it into the River. This had a deleterious effect on the River and its ecosystem, and by 1970 the sorry state of the River was visible to the naked eye.


Among the solid matter suspended in the mills' effluent were PCBs, which were the pollutant that attracted the attention of the EPA in the mid-1990s. PCBs are carcinogenic for humans and animals alike, and they have harmful non-carcinogenic effects on the immune, reproductive, neurological, and endocrine systems, as well as the skin. See Health Effects of PCBs, EPA (June 13, 2013), http://www.epa. gov/waste//hazard/tsd/pcbs/pubs/effects.htm. By the time their use was banned by the EPA in 1979, some 250, 000 pounds of PCBs had been released into the River. See Lower Fox River and Green Bay Site, EPA (Apr. 2, 2014),

The PCBs in the River can all be traced back to NCR's carbonless copy paper, which it (along with other companies with which it contracted) produced between the mid-1950s and 1971. As the name suggests, carbonless copy paper permitted a writer or typist to make instant copies of documents without the use of carbon paper. This effect is achieved by coating the back of a top sheet of paper with an emulsion containing "microcapsules" of dye and solvent; the micro-capsules burst when a user writes on the sheet and thereby reproduce the same image on the lower sheet. A critical ingredient of the emulsion was Aroclor, a PCB-based chemical sold by Monsanto. NCR manufactured the emulsion, which it then sold to two companies (Appleton Coated Paper Company and Combined Paper Mills), which coated the paper and sold the finished product back to NCR for commercial distribution. Those two companies were formally independent from NCR until 1969 and 1970, respectively, when they became NCR's wholly owned subsidiaries.

The PCBs used to make carbonless copy paper ended up in the Lower Fox River in two principal ways. First was the straightforward one: some of the emulsion used to coat the paper was necessarily lost in the production process and was mixed with the wastewater that the mills released into the River. Explaining the second way requires us to give a bit more background about the paper industry. Producing paper from raw materials is relatively expensive. The production process creates a fair amount of waste, scraps, and undersized rolls that are unusable by the original manufacturer; these are called "broke" in the trade. Making paper from recycled broke is cheaper than making it from scratch, a fact that spurred the growth of a sub-industry of "recycling mills." The nongovernmental defendants in this case are such mills. These mills purchase broke from other paper mills through middlemen and use it to make paper.

The companies that coated paper with NCR's emulsion also participated in the normal industry practice of selling broke to recycling mills. Upon receipt of the broke, the recycling mills would process it to separate the usable fibers from the coating, thus removing the PCBs from the portion of the paper that went into the new product. The waste (including of course the PCBs) was then dumped into the River with the mills' wastewater.

Another problem with PCBs is that they attach readily to solids and do not degrade. As more and more PCBs were dumped into the River each year, they accumulated in the riverbed. Eventually, people became aware of the dangers of PCBs, and both private and governmental entities began to take action. Monsanto stopped selling products containing PCBs in August 1970, and NCR ceased using PCBs in its carbonless copy paper once its supplies of Aroclor ran down the following year. The EPA issued regulations largely banning the use of PCBs in 1979. See 40 C.F.R. § 761.1 et seq.

Congress passed CERCLA in 1980 to spur the environmental cleanup of sites contaminated by hazardous substances. See Pub. L. No. 96-510, 94 Stat. 2767 (1980) (codified as amended at 42 U.S.C. § 9601 et seq.). The EPA, in coordination with the Wisconsin Department of Natural Resources (WDNR), set its sights on the Lower Fox River as a CERCLA cleanup target in 1998; it issued a final cleanup plan in 2002. See United States v. NCR Corp., 688 F.3d 833, 836 (7th Cir. 2012). The plan divided the River into five "operable units, " which is jargon for geographic sections, and ordered a combination of dredging the riverbed and capping contaminated areas so as to remove and contain the PCBs and prevent them from reaching Lake Michigan, where it would be all but impossible to do anything about them.

When the EPA determines that environmental remediation is required, CERCLA shifts the cost of that cleanup to the parties responsible for creating the hazard and away from taxpayers, who otherwise would be left to pick up the bill. The statute identifies who is regarded as a Potentially Responsible Party (PRP) in a cleanup action: it includes the current owners and operators of the cleanup site; the owners and operators at the time that the hazardous substance was disposed; parties that "arranged for" disposal of the substance; and parties that accepted the substance for transportation to a disposal site of their choosing. CERCLA § 107(a), 42 U.S.C. § 9607(a). All PRPs are liable for costs incurred by the state and federal governments related to the remediation. At the liability stage...

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