When EPA Comes Calling: Basic Buren of Proof Issues
 
by Rick Hitchcock

There are many arrows in the government's quiver when it pursues a cost recovery action under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA").  But what if the government's archer takes aim at a client who did not contribute hazardous waste to the Site for which cost recovery is sought?  What proof is required to establish that a potentially responsible party ("PRP") is really a responsible party, and where does the burden of proof lie?  In this brief article, I will provide references to some authorities relevant to these questions.

Consider two scenarios:

1. Mr. Oilseeker spends ten years gathering used motor oil from automobile dealers, service stations, and other businesses.  He offers a great deal:  he takes your problem oil, no cost and no questions.  Mr. Oilseeker sells most of the motor oil to companies that re-refine it.  Extra oil is poured into the sinkhole in the back of his office.  Mr. Oilseeker does not keep records of where he collects the oil, deals in cash when he has to pay for the oil, and gives no receipts. 

2. Mr. Scrapdealer started out in 1946 dealing with military scrap, and over the next twenty years he bought and sold most anything.  Many of his best deals involved buying "obsolete" equipment and reselling it intact.  At other times, he made his money by dismantling equipment and selling parts and metals.  Over the years, the equipment included transformers, many of which were filled with insulating fluids contaminated with polychlorinated biphenyls (PCBs).

The Environmental Protection Agency (EPA) eventually discovered the Oilseeker and Scrapdealer Sites and spent several years and many dollars cleaning up hazardous waste contamination.  To prepare for cost recovery under CERCLA § 107(a)¹ , EPA prepared information requests under CERCLA § 104(e) and sent them to a long list of PRPs.  The letters demanded a comprehensive search of records to locate information concerning transactions with the Sites and their  operators, a detailed description of disposal practices for waste produced by the PRPs, and information on insurance policies that were in place at relevant times.

Sue Lawyer's client, Big Hearted Joe's, receives 104(e) letters for both the Oilseeker and Scrapdealer Sites.  Big Hearted Joe spends many hours searching dusty and musty records for the past 60 years, and responses are sent to EPA.  Big Hearted Joe feels pretty good about the responses, which he believes prove conclusively that he had nothing to do with hazardous waste disposal at either of the Sites.  His company buys and sells used cars, and he has never changed the motor oil in any of them, much less provided any used motor oil to Mr. Oilseeker.  The only time he had any dealings with Mr. Scrapdealer was when he sold him 10 surplus Memphis Police Department cruisers off his lot.  The cars ran, and no one in his right mind would have scrapped them.

A year later, Big Hearted Joe calls and reports that he has just received demand letters from EPA stating that he is jointly and severally liable for $2.9 million in response costs at the Oilseeker Site and for $1.3 million in response costs at the Scrapdealer Site.  Big Hearted Joe is outraged and demands that Sue Lawyer promptly straighten it out.

Sue calls the EPA Assistant Regional Counsel listed in each of the demand letters and ask why her client is expected to pay for sites to which he never contributed any hazardous waste.  Sue asks for the documentation that supports the EPA position, and files a broad FOIA request.  Sue learns that Mr. Oilseeker did not keep any records of the sources of the used motor oil and that he is not making any statements since he got the target letter from the U.S. Attorney.  However, EPA has located a driver who worked for Mr. Oilseeker and who has provided an affidavit stating that he overheard another Oilseeker driver stating that he picked up used oil from Big Hearted Joe's.  Of course, at this stage in the proceedings, EPA cannot disclose the two drivers' names or provide Sue a copy of the affidavit, because it is "enforcement confidential".  Sue learns that there are some problems with the records at the Scrapdealer Site, all of which burned in a fire in 1973.  Mr. Scrapdealer died five years ago, but Sue is told that a neighbor remembers that Mr. Scrapdealer regularly dismantled used cars, and he certainly must have spilled some motor oil when he removed the engines.  And, of course, Big Hearted Joe admitted that he sold those 10 police cruisers to Mr. Scrapdealer.

The EPA Assistant Regional Counsel reminds Sue that CERCLA is a strict liability statute.  He knows that it doesn't sound fair, but CERCLA is the law², and he asserts that Big Hearted Joe needs to make an offer of settlement before EPA refers him and any other "recalcitrant" PRPs to the Justice Department in Washington for cost recovery litigation.

What threshold facts must the government prove to establish Big-Hearted Joe's liability in a cost recovery action under § 107(a) of CERCLA?  What defenses are available?  What does Sue Lawyer advise her client?

The elements of a plaintiff's prima facie case for cost recovery under § 107(a) are:

(i) The Site at issue is a "facility" under CERCLA, (ii) there has been a release of one or more hazardous substances at that Site, (iii) the release caused the plaintiff to incur response costs, (iv) the costs incurred by the plaintiff were necessary and consistent with the National Contingency Plan (NCP) under CERCLA . . . , and (v) the defendant falls within one of the four categories of persons, including "arrangers", liable for the costs of remedial action.

W.R. Grace & Co. v. Zotos International, Inc., 2005 U.S. Dist. LEXIS 8755, n.21 (W.D.N.Y. 2005), citing United States v. Alcan Aluminum Corp., 990 F.2d 711, 719-20 (2d Cir. 1993).³

The four categories of persons who may be held liable for the release of a hazardous substance are:

1. The owner and operator of  . . . a facility
2. any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of
3. any person who . . . arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person . . . 
4. any person who accepts or accepted any hazardous substance for transport to disposal or treatment facilities . . . or sites selected by such person . . . 

Gallagher v. T.V. Spano Bldg. Corp., 805 F. Supp. 1120, 1126 (D. Del. 1992).
There are three requirements for liability as an "arranger", the category applicable to most waste generators.  "First, the defendant must be a 'person' as defined under CERCLA; second, the defendant must 'own' or 'possess' the hazardous substance at issue; and third, the defendant must, by contract, agreement or otherwise, arrange for the transport or disposal of such hazardous substances."  Mainline Contracting Corp. v. Chopra-Lee, Inc., 109 F.Supp. 2d 110, 117 (W.D.N.Y. 2000).

The principal affirmative defenses available to a defendant are described in CERCLA § 107(b).  Of course, as to these affirmative defenses, the defendant has the burden of affirmatively pleading them and of proving the facts that support them.  The courts have also established an additional defense opportunity.  The concept applies principles set forth in the Restatement (second) of Torts § 433A, which permits apportionment of damages among certain joint tortfeasors.  In U.S. v. Alcan Aluminum Corp., 990 F.2d 711 (2d Cir. 1993), the defendant argued that it should be able to prove that the material that it sent to the Site was so devoid of hazardous constituents that it did not contribute to the release and cleanup costs or, alternatively, that the material contributed only to a divisible portion of the harm.  The Second Circuit agreed that Alcan could make such causation arguments, but noted that "[t]he government has no burden of proof with respect to what cause or release of hazardous waste and triggered response costs.  It is the defendant that bears that burden."  Id. at 722.

Although these principles have generated thousands of pages of opinion and law review articles, they are straightforward in their application to the scenarios. 

The Oilseeker Site.  Without more (and in litigation we know that there is almost always more), EPA probably cannot meet its initial burden of showing that Big Hearted Joe's was an arranger of hazardous waste disposed of at the Site.  The testimony of the driver about what he heard another driver state is clearly hearsay, and there is no apparent exception applicable to permit its introduction.  The practical problem faced by Big Hearted Joe's attorney is whether EPA or the state agency will eventually be able to offer testimony from the other driver or will be able to find someone else who has personal knowledge concerning the reported oil pickups from Big Hearted Joe.  Early in the process, Sue Lawyer may not throw down the gauntlet because of the risks that further facts will be developed.  On the other hand, if it is late in the process, her approach may be different.  For example, EPA's presentation of a tolling agreement prior to the impending expiration of the statute of limitations may provide an opportunity to demand that EPA lay its cards on the table.  If those cards still contain no admissible evidence on an element of EPA's prima facie case, Sue may be more comfortable in advising that Big Hearted Joe's respond by telling EPA, "So, sue me". 

The Scrapdealer Site.  EPA would undoubtedly argue that it can establish its prima facie case, contending Big Hearted Joe is an "arranger" who admitted that he sent 10 patrol cars filled with hazardous motor oil (not to mention benzene-filled gas tanks) to the Scrapdealer Site.  However, all that Big Hearted Joe admitted was that he sold Scrapdealer 10 operable automobiles from his lot.  Big Hearted Joe sold used cars, he did not arrange for disposal or transport of hazardous substances.  Further, there is no evidence that the used cars ever went to the Scrapdealer Site.  The neighbor's testimony about some cars being scrapped did not identify the cars as Big Hearted Joe's cars.  Once again, Sue may vary her advice depending on whether EPA is continuing its efforts to gather PRP information and may have the prospect of developing more incriminating evidence. 

Conclusion
Given the number of PRPs identified over the last two decades, it is remarkable that there are not more cases addressing fundamental issues of evidence and burden of proof.  This is probably due to two factors.  First, many PRPs give up all hope when confronted with a typical claim for a site's entire costs under a statute that imposes strict, joint and several liability.  Second, the vast majority of PRPs settle when faced with the prospect of large litigation costs to prove their innocence.  As the scenarios suggest, there are many circumstances in which threshold issues of evidence and of burden of proof should be considered in the evaluation of a case.  Although Big Hearted Joe might escape total liability on both Sites after long litigation, Sue Lawyer will probably counsel him to settle even doubtful claims for an amount reflecting some fraction of his potential defense costs. 

If you have any questions about this article or need additional information, please do not hesitate to contact Rick Hitchcock at: 423.757.0277 or rhitchcock@cbslawfirm.com

  ¹42 U.S.C.A. § 9607(a).
  ²For one court's view of the fairness of CERCLA, see U.S. v. A&N Cleaners, 854 F. Supp. 229, 239-242 (S.D.N.Y. 1994).
  ³The government benefits from presumptions that can assist it in proof of its prima facie case.  For example, it is presumed that response costs paid by federal and state agencies are consistent with the NCP.  CERCLA § 107(a)(4)(A).