Federal and State governments are frequently targets of CERCLA contribution actions (or cost recovery actions) where they have allowed third parties to engage in hazardous waste generating activities on property owned or leased by the government. Two cases, Nu-West Mining Inc. v United States and Pakootas v Teck Cominco Metals, Ltd. (both in the Ninth Circuit) recently addressed this issue. Although the cases resulted in two seemingly different outcomes, they can be reconciled on their facts. Their possible negative impact on waste management policy, though, is another issue.

I. Nu-West Mining Inc. v United States (U.S.D.C., Idaho, 4:CV 09-431-BLW)

This case involved mining leases that the governor awarded in the late 1940s. As part of the leases, the lessees had the right to dump waste rock on national forest land adjacent to the leased mines. During the mining operations, the government approved plans for mining waste disposal and reclamation, monitored the mining process, required the mines to meet certain production requirements, and collected a royalty fee. Unfortunately, the government-approved waste pile design allowed selenium to leach out of the waste pile and contaminant the groundwater in the area around the mines.

Cost Recovery Suit Against The US.
In the 1990s, Nu-West entered into an AOC to clean up the sites and filed suit against the US under the “arranger” liability provisions of CERCLA §107 to recoup those costs. The court, in analyzing the government’s potential arranger liability, primarily relied on prior rulings in U.S. v Shell Oil Company (294 F.3d 1035(9th Cir. 2002)) and Burlington Northern and Santa Fe Railroad Company v U.S. (129 S.Ct. 1870 (2009)). In particular, the Nu-West court focused on the Shell Oil court’s statement that an entity has “arranger liability” if it has “direct involvement in arrangements for the disposal of waste”. Shell at 1055. It also focused on the following three elements relied upon by the Shell Court:

(1) whether the entity owns the hazardous substance;

(2) whether the entity had authority to control the disposal; and

(3) whether the entity exercised some actual control over the disposal.

In addition, the court relied on Burlington Northern’s interpretation of to “arrange for” as meaning that an arranger must take “intentional steps to dispose of a hazardous substance”.

US Liable As An Arranger
Because the US owned the waste piles, had authority to control the disposal, and exercised control over the disposal, the Nu-West court concluded that the US was liable as an “arranger” under CERCLA §107. The court also rejected the government’s argument that its conduct was purely regulatory and was intended to only mitigate the environmental harm caused by the parties. In doing so, the court noted that the government previously waived its sovereign immunity under CERCLA and has even been liable under CERCLA in situations that “cannot possibly be characterized as “non-governmental” (i.e., military base operation).

II. Pakootas v Teck Cominco Metals, Ltd. et al. (U.S.D.C., E.D. Wash; 2:04-CV-00256-LRS)

Like Nu-West, the State of Washington entered into mining leases in the 1940s for the purposes of removing copper, silver, lead, gold and other valuable minerals from State land. Although the contract specified a royalty payment to the State, it did not address waste disposal.

Cost Recovery Suit Against the State
The plaintiffs’ land was contaminated by the defendant’s historical mining operations and they filed suit under CERCLA. The defendant filed a counterclaim against the State as a CERCLA §107 “arranger”. The defendant claimed that waste disposal was an inherent part of mining and, therefore, the State had contracted for waste disposal by contracting for the mining.

State of Washington Not Liable As An Arranger
The court rejected the rationale of the defendant’s argument. In doing so, the court relied heavily on the Supreme Court’s analysis in Burlington Northern case:

It is plain from the language of the statute that CERCLA liability would attach under Section 9607(a)(3) if an entity were to enter into a transaction for the sole purpose of discarding a no longer useful hazardous substance. It is similarly clear that an entity could not be held liable as an arranger 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. Less clear is the liability attaching to the many permutations of “arrangements” that fall between these two extremes – cases in which the seller has some knowledge of buyer’s planned disposal or whose motives for the “sale” of a hazardous substance are less than clear. In such cases, courts have concluded that the determination whether an entity as an arranger requires a fact-intensive inquiry that looks beyond the parties’ characterization of a transaction as a “disposal” or “sale” that seeks to discern whether the arrangement was: (1) Congress intended to fall within the scope of CERCLA’s strict liability provisions. (129 S.Ct. 1878-79)

Using this analysis, the Pakootas court found that the State mining leases before it were not like any of the “extreme” cases referenced in Burlington Northern. The court also found that the State did not enter into these mining contracts for the sole purpose of discarding a used and no-longer useful hazardous substance because the ore deposits were useful. However, the State had some knowledge of the disposal so the case was the type that fell in between the two extremes.

Therefore, the court performed a fact intensive inquiry whether the lease between the State and mining companies in question was the type “(1) Congress intended to fall within the scope of CERCLA’s strict liability provisions”. Relying on the Supreme Court’s analysis in the Burlington Northern decision, the trial court stated that “disposal and/or treatment of hazardous waste cannot be merely “foreseeable”. It must be a specific purpose of the transaction, not merely “inherent” in the transaction.

In terms of the facts before it, the court noted the following: naturally ore deposits did not have the “characteristic of waste” when they were “delivered” to the mining companies pursuant to the leases, there was no intent by the State to dispose of the mining waste merely because of the mining, disposal of hazardous waste was not the purpose of the transaction, the State did not require the mining companies to dispose of the waste in any particular manner, the ore deposits did not have the characteristic of waste and the State never owned or possessed any hazardous waste. In light of these factors, the court held that the State did not qualify as an “arranger” under CERCLA §107.

Reconciling the Cases
Comparing the two cases, it’s pretty clear why the courts wound up with two seemingly different results. In Nu-West, the court focused on the fact that the US Government owned the property where the waste was disposed and the Government’s intimate involvement with approving the waste pile design. The mining leases in the Pakootas case, on the other hand, simply addressed mining and were silent on waste disposal or handling.

However, what these seemingly disparate cases show is that the more a government agency becomes involved in the manner of handling the mining wastes, the more likely it is to be held liable as an “arranger” under CERCLA. This is a very odd result indeed from a policy perspective because it discourages government agencies form overseeing and ensure that wastes are handled properly.