Margaret Anne Hill, Frank L. Tamulonis III, and Stephen C. Zumbrun
Twenty-two years after the Supreme Court’s ruling in Bestfoods, a government contractor—PPG Industries, Inc. (“PPG”)—comes face to face with one of the most important tenets of that court’s decision: operator liability under Superfund. Although the Supreme Court’s decision in Bestfoods focused on operator liability in the context of a parent and subsidiary relationship, the Third Circuit Court of Appeals in PPG Industries, Inc. v. United States of America et al. relied on the Supreme Court’s analysis of operator liability in determining whether the United States should be held liable under CERCLA as an operator in connection with chromium production during World War II. This case serves as a reminder to private industry: you do not have to be physically operating a plant or facility in order to be liable as an “operator” under Superfund. Rather, you can acquire liability by managing, directing, or conducting activities specifically related to operations involving releases or disposal of hazardous substances, or by engaging in decisions regarding compliance with environmental regulations.
As the Third Circuit explained, chromium production was regulated by the government during both world wars given that chromium chemicals were designated as critical war materials for military use. Chromium distribution was controlled pursuant to orders issued during World War II by the Chemicals Bureau of the War Production Board (“Board”), although chromium production—including the processing of ore and management of waste—were not part of the government’s orders. PPG purchased a facility from a former chromium chemical manufacturer (Natural Products Refining Corporation or “NPRC”) in 1954, and continued to process chromium chemicals until 1963. PPG filed a private cost-recovery claim against the government seeking the recovery of CERCLA response costs that it expended ($367 million, to date), as well as contribution for past and future costs.
PPG’s main contention was that Bestfoods did not apply to its case since that ruling did not involve the government as an operator, and that if Bestfoods was applicable, operator liability should be imposed on those parties having “direction” or “general control” over a facility’s activities. The Third Circuit rejected these arguments and, applying Bestfoods’ definition of “operator” to the wartime operations conducted at the PPG facility, observed that although the government controlled certain aspects of chromium distribution, including pricing and quantities of chromite ore that NPRC could buy and to whom NPRC could sell, as well as what orders had priority, the government did not specifically control operations related to pollution. The Third Circuit considered evidence related to the stockpiling of waste outdoors (which caused the contamination) and rejected the proposition that the government was “directing” PPG to produce more wastes merely because of the government’s knowledge that ramping up chromium production would lead to an increased amount of chromium wastes to be managed. The court also noted that no court has said that the test for determining operator liability depends upon whether a potentially responsible party is a private party or a governmental entity, and cited its 1994 decision in FMC Corp. v. United States Department of Commerce (in which the court found the government liable as an operator based on its active involvement and substantial control of the facility). Further, the court noted that the FMC decision (which PPG argued was a similar case) was distinguishable because the government was directly involved with waste production and regulation at the plant.
The court’s decision and analysis in PPG offers some interesting insights to the concept of operator liability under Superfund and, further, provides instructive guidance to private industry on how to avoid CERCLA liability as an operator. Perhaps the most critical “takeaway” from this case is that operator liability depends on the relationship between the potentially responsible party and the waste-producing facility. “Actual control” of a facility is not necessary; the relevant inquiry will be whether an alleged operator exercises control over “operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.” Under this analysis, the relationship between the potentially responsible party and the facility—and not the relationship between the potentially responsible party and the owner of the facility—is the focus of the inquiry. The Third Circuit has just reinforced the Supreme Court’s analysis of CERCLA operator liability as first explained in Bestfoods two decades earlier.