Vine Street LLC v. Borg Warner Corp;

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 07-40440
VINE STREET LLC
Plaintiff - Appellee
v.
BORG WARNER CORP;
Defendant - Appellant
Appeal from the United States District Court
for the Eastern District of Texas
Before KING, JOLLY, and COSTA, Circuit Judges.
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 (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
United States Court of Appeals
Fifth Circuit
FILED
January 14, 2015
Lyle W. Cayce
Clerk
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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
2
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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
1 Borg Warner sold Norge to a company called Fedders in 1968. At the time it sold
Norge, it purported to assign the liabilities associated with Norge’s business to Fedders. Borg
Warner has raised the issue of contractual allocation of liability on appeal, but as we explain
infra, we need not reach that issue in order to decide this appeal.
2 It appears that Norge only provided the initial supply of PERC. The cleaners
received additional supplies of PERC from another company, and although Vine Street
suggested in its brief that Borg Warner supplied its own PERC to the cleaners, there does
not appear to be any evidence supporting this assertion in the record.
3 Although there was some dispute in the district court as to the effectiveness of these
separators, most of the PERC was recycled. It appears from the record that the parties
largely operated on the assumption that the water separators were generally at least 95%
effective.
3
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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
4
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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 (2009). In Burlington Northern, an agricultural chemical distributor
purchased several chemical products from Shell Oil Company. Id. at 602.
4 Borg Warner does contest the amount of damages as an alternative argument on
appeal. As we explain infra, we conclude that Borg Warner is not liable as an arranger, and
thus we do not reach the issue as to damages.
5
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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. 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. 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 intentional steps to dispose of a hazardous
substance.” Id. at 611. On the facts of Burlington Northern, the Court accepted
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as true that Shell knew that its shipping conditions would result in spillage of
hazardous substances. Id. at 612. Knowledge, standing alone, did not give rise
to liability because “knowledge alone is insufficient to prove that an entity
‘planned for’ the disposal, particularly when the disposal occurs as a peripheral
result of the legitimate sale of an unused, useful product.” Id.
b.
Relevant to this appeal, Burlington Northern effected a partial change
in this Circuit’s law. This Court has long recognized the so-called “useful
product doctrine,” and we have held that a party is not liable as an arranger if
it were engaged in the mere sale of a useful product that is not properly
considered to be “waste.” See Dayton Indep. Sch. Dist. v. U.S. Mineral Prods.
Co., W.R., 906 F.2d 1059, 1065–66 (5th Cir. 1990). We did not require that a
party intend to dispose of waste, however, as we imposed liability as long as
there was a sufficient “nexus” between the purported arranger and the disposal
of waste. See Geraghty & Miller, Inc. v. Conoco Inc., 234 F.3d 917, 929 (5th
Cir. 2000). After Burlington Northern, we have recognized that Geraghty &
Miller is no longer controlling authority. Celanese Corp. v. Martin K. Eby
Constr. Co., 620 F.3d 529, 532 n.1 (5th Cir. 2010).
On appeal, Borg Warner urges us to apply Burlington Northern and
reverse the district court’s judgment in favor of Vine Street, which was based
on the outdated nexus standard from Geraghty & Miller. We will review this
appeal under the standard in Burlington Northern and, in doing so, conclude
that Borg Warner is not an “arranger” under CERCLA.5
5 As a threshold matter, we conclude that Borg Warner preserved this issue for review
on appeal. Generally, we must decide an appeal based on the law as it stands at the time we
render our decision. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 486 n.16 (1981). An
intervening change in the law, however, “normally does not permit a party to raise an entirely
new argument that could have been articulated below or in the party’s opening brief.”
Learmonth v. Sears, Roebuck & Co., 710 F.3d 249, 256 (5th Cir. 2013). In Learmonth, we
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2.
Under Burlington Northern, the plaintiff must establish that the
purported arranger took “intentional steps to dispose of a hazardous
substance.” 556 U.S. at 611. Thus, CERCLA arranger liability is premised
upon an intentional act directed toward the disposal of hazardous waste.
a.
i.
We focus first on the basic intent requirement, as the district court found
that the discharges of PERC were unintentional. In its opinion, the district
court stated that “[w]hile the pollution happened many years ago, neither party
intended to allow the discharge of PERC into the ground.” Vine Street seizes
on the phrase “into the ground” and argues that even though Norge did not
intend to pollute the groundwater, it nonetheless intended for PERC to
discharge into the sewer. We believe that Vine Street overemphasizes the
value in this phrase, when considered in the light of the district court’s opinion.
To be sure, the district court repeated and clarified its finding as to intent
throughout its opinion. The district court noted that a witness “recalled no
spills or intentional disposals of PERC that occurred and indicated College
Cleaners personnel handled the rather expensive PERC with a high degree of
care.” It also found no evidence of a manufacturing defect or improper
declined to consider a new issue on appeal when the plaintiff “could have made the ‘general
argument’ below.” Id. at 257.
Here, Borg Warner plainly made the same general argument below that it makes
today. Before the district court, Borg Warner urged the court to consider “whether the
purpose of the transaction was waste disposal” under the pre-existing nexus approach. It
also argued that the so-called “useful product doctrine” was relevant to deciding whether
there was a disposal of waste. Additionally, we note that Vine Street also argued the case
under the Burlington Northern standard at oral argument. Vine Street merely contends that
it meets Burlington Northern. Thus, we proceed to evaluate the case under Burlington
Northern.
8
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maintenance. Each of these separate findings underscores that the district
court found a lack of intent on the part of Norge and that it imposed liability
solely based on the weaker nexus that existed between Norge and the ultimate
disposal of PERC down College Cleaners’ sewer line.
ii.
Although the district court ruled before the Supreme Court decided
Burlington Northern, we see no need to remand the case for any further fact
finding under the Burlington Northern standard; Norge’s actions were plainly
unintentional when viewed under that standard. Although the distinction
between an intentional and a knowing act is a relatively fine one, Burlington
Northern provides crucial clarification. First, the Court explained that Shell
knew its shipping procedures “would result in the spilling of a portion of the
hazardous substance of the purchaser or common carrier.” 556 U.S. at 612. In
that same vein, the plaintiffs argued that Shell could anticipate the spills and
thus it was properly liable as an arranger. Id. Vine Street makes a similar
argument in different terms today: Norge knew that PERC would escape the
water separators into the sewer system, and because the discharge was
inevitable, Norge necessarily intended to discharge PERC into the sewer.
The Court rejected these arguments advanced by the plaintiffs, however,
underscoring two factors. First, the Court emphasized that the disposal
occurred “as a peripheral result of the legitimate sale of an unused, useful
product.” Id. at 612. Critical to this appeal, the Court evaluated the
underlying transaction and concluded that the purpose behind the transaction
was to sell useful chemicals to distributors and not to dispose of them. Second,
the Court pointed out that although Shell was aware of the spills, the spills
were unintentional because “the evidence revealed that Shell took numerous
steps to encourage its distributors to reduce the likelihood of such spills.” Id.
at 613. Thus, “[a]lthough Shell’s efforts were less than wholly successful, given
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these facts, Shell’s mere knowledge that spills and leaks continued to occur is
insufficient grounds for concluding that Shell ‘arranged for’ the disposal of [a
hazardous substance].” Id.
Both factors implicated in Burlington Northern are also implicated here.
Vine Street and Borg Warner acknowledge that PERC was a useful product
that was necessary to College Cleaners’ operation.6 To the point, the district
court concluded both that College Cleaners employees handled PERC with care
and that Norge designed its machines to recycle as much of the PERC as
possible. Here, Norge’s dry cleaning machines contained water separators that
would recycle most of the PERC and discharge wastewater into the sewer.
Moreover, when we view the business relationship between Norge and College
Cleaners as a whole, it is clear that the transaction centered around the
successful operation of a dry cleaning business—not around the disposal of
waste.
The First Circuit’s decision in United States v. General Electric Co., 670
F.3d 377 (1st Cir. 2012), provides a useful contrast. In General Electric, an
alleged arranger had accumulated a glut of a scrap material, low-quality
Pyranol, that it sold at bargain prices to a manufacturer that intended to use
the scraps as a paint additive. Id. at 380. The manufacturer missed payments
on the scrap material, but the arranger continued to send supplies of the scrap
material. Id. The First Circuit concluded that the scrap Pyranol was not a
useful product because there was no evidence that the arranger viewed the
product as having value or marketed it as valuable. Id. at 386–87. The court
6 Vine Street argues that Borg Warner has waived its useful product arguments
because the useful product doctrine is an affirmative defense that Borg Warner failed to plead
in its complaint or raise at trial. Borg Warner repeatedly raised its useful product arguments
in the district court, and we may consider its arguments on appeal, particularly as they are
now intertwined with the Burlington Northern analysis of intent.
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also emphasized the suspicious facts in that case, where the manufacturer
received unsolicited increases of the Pyranol and received such shipments even
after regularly missing payments. Id. at 388. In short, the CERCLA defendant
in General Electric attempted to dispose of excess waste products through the
guise of a legitimate transaction.
Here, there is no evidence to suggest that Norge engaged in subterfuge
to disguise the disposal of PERC as a legitimate transaction surrounding the
operation of a dry cleaning business. Unlike General Electric, Norge’s PERC
was unused and not a scrap material, and Norge also sold College Cleaners the
equipment needed to put the PERC to use. Indeed, the record reveals that
College Cleaners successfully operated for some fifteen years at that location
and that it used, and reused, Norge’s supply of PERC.7 Thus, as in Burlington
Northern, the purpose of the transaction between Norge and College Cleaners
was to sell PERC and dry cleaning equipment, two unused, useful products.
Both Norge and College Cleaners intended that the water separators would
recycle the expensive PERC for future uses.
In an analogous context, we declined to hold manufacturers of asbestos
liable for environmental cleanup costs because the manufacturers designed the
materials “for the primary purpose of creating a new useful and marketable
product for the construction industry.” Dayton, 906 F.2d at 1065. When those
manufacturers sold the materials to the CERCLA plaintiffs, they were not
“disposing” of the product. Id. To that end, we have said that arranger liability
applies to those “who would attempt to dispose of hazardous wastes or
substances under various deceptive guises in order to escape liability for their
7 Indeed, Vine Street’s counsel stated at oral argument that Norge’s initial supply of
PERC to College Cleaners constituted approximately 20% of the PERC used throughout the
fifteen-year lifetime of the cleaners. This fact underscores that Norge’s supply of PERC was
a useful product and that much of the PERC was successfully recycled.
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No. 07-40440
disposal.” Id. at 1066. Here, that description simply does not apply to Norge.
We repeat that distinction: Norge supplied College Cleaners with a supply of
unused, useful PERC, and some of that PERC inadvertently discharged
because the water separators were not completely effective.
Furthermore, Norge developed the water separators to separate
wastewater from PERC and proceeded to develop additional measures to
reduce any discharges of PERC after it learned that the separators were not
completely efficient. The district court treated Norge’s subsequent remedial
measures as evidence that Norge did arrange for the disposal of a hazardous
substance because the measures confirmed Norge’s knowledge of the
discharges. Following Burlington Northern, however, it is evident to us that
these remedial measures, coupled with the design of the water separators,
generally cut against a finding of intent.
In sum, we hold that Norge did not intend to discharge PERC under the
standard set out in Burlington Northern.
b.
Finally, Vine Street attempts to distinguish this case on the basis that
Norge was integrally involved in installing the dry cleaning machines and
connected them to the drains and sewer line. We are unmoved by this
distinction.
Vine Street’s purported distinction flows in large part from dicta in a
Ninth Circuit case, in which that court held that a dry cleaning equipment
manufacturer was not liable as a CERCLA arranger but still took time to note
that there was no evidence that the manufacturer “hooked up [the equipment]
to the sewer.” Team Enters., LLC v. W. Inv. Real Estate Trust, 647 F.3d 901,
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911 (9th Cir. 2011).8 The Team Enterprises court, however, was only pointing
out the complete lack of evidence in the case before it; it did so by pointing to a
number of factual scenarios that might give rise to a finding of intent that were
absent in the case before it. The Ninth Circuit plainly did not hold that merely
connecting dry cleaning equipment to a sewer is sufficient evidence of intent.
To be certain, the reasoning of Team Enterprises actually contradicts
Vine Street’s position here. In Team Enterprises, dry cleaning equipment was
designed so that the machines would deposit wastewater into a bucket. PERC
would separate from the wastewater in the bucket, and the cleaner could
recycle PERC while pouring wastewater (along with invisible amounts of
PERC) down the drain. Id. at 906. Much like Vine Street here, the plaintiff in
Team Enterprises argued that “intent can be inferred from [the
manufacturer’s] designing its product in such a way as to render disposal
inevitable.” Id. at 909. Here, Vine Street argued repeatedly that intent can be
inferred from the fact that discharge was “inherent” from the inefficiencies of
the water separators. The Ninth Circuit concluded, however, that “[t]he self-
evident purpose of the [dry cleaning machine] was to recover and to recycle
usable [PERC] that would otherwise be discarded.” Id. Thus, the court held
that the plaintiff had failed to show that the manufacturer intended to
discharge PERC. Id. at 909–10.
As in Team Enterprises, Norge designed its machines and the dry
cleaning facility with the intent that College Cleaners could reuse its supply of
8 Additionally, Vine Street points to a pre-Burlington Northern case from a California
district court in which the court concluded that a CERCLA plaintiff could survive a motion
to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, in part because the
complaint alleged that the equipment manufacturer connected the machines “to the building
drain, which was itself connected to the sewer system.” Cal. Dep’t of Toxic Substances Control
v. Payless Cleaners, 368 F. Supp. 2d 1069, 1080 (E.D. Cal. 2005). As we explain infra, we
find this district court case unpersuasive.
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PERC. It did not intend to dispose of PERC, and thus Borg Warner is not liable
as an arranger.
B.
Finally, we turn to Vine Street’s additional claim under the Texas Solid
Waste Disposal Act. An entity is an arranger under the TSWDA if it:
(3) by contract, agreement, or otherwise, arranged to process,
store, or dispose of, or arranged with a transporter for transport to
process, store, or dispose of, solid waste owned or possessed by the
person, by any other person or entity at:
(A) the solid waste facility owned or operated by another
person or entity that contains the solid waste; or
(B) the site to which the solid waste was transported that
contains the solid waste.
Tex. Health & Safety Code § 361.271(a)(3). We have held that “we are
confident that the Texas Supreme Court would apply Burlington [Northern] to
[a party’s] SWDA claim.” Celanese Corp., 620 F.3d at 534. Thus, we hold that
Vine Street’s TSWDA fails for the same reasons as its CERCLA claim.
III.
Consequently, Borg Warner is entitled to judgment in its favor on Vine
Street’s CERCLA and TSWDA claims because Norge, its subsidiary, did not
intentionally dispose of a waste product when it sold dry cleaning equipment
and an initial supply of PERC to College Cleaners. We should note that the
Supreme Court’s decision in Burlington Northern changed the relevant law
while this case was on appeal. Accordingly, we hold that the district court’s
decision cannot stand in the light of Burlington Northern.
REVERSED, VACATED, and REMANDED,
for entry of judgment in favor of Borg Warner.
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