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What clients ought to know about Superfund liability

Have you ever wondered what happens to your old television when you buy a new one? Most TVs, and tons of other used electronic devices, are collected by local governments and shipped to recyclers. Private companies also sell their used electronic equipment to recyclers, who then process the items into commodities to use in making new products.

Earp

Earp

But there is a dark side to this feel-good recycling story. Used electronics may include hazardous substances such as lead, cadmium, and mercury. If the recyclers don’t handle them properly, they can cause contamination.

What happens next may surprise you. The legal responsibility for paying to clean up this contamination falls not only on the recyclers, but ultimately may be imposed on the municipalities and companies that sent materials to that recycler. This is due to the unique liability provisions in the Superfund law, known to lawyers and judges as CERCLA, or the Comprehensive Environmental Response, Compensation, and Liability Act.

The Carolina Pines Decision

This is precisely the result we saw in Carolina Pines I, LLC v. City of Abbeville Public Works, a November 2018 decision from South Carolina’s U.S. District Court. The case involved Creative Recycling, an electronics recycling company with operations in South Carolina that had contracts with a number of municipalities to recycle used electronic equipment collected from their communities.

Unfortunately, Creative did not actually recycle all of that equipment. Instead, it packed a warehouse and 13 trailers with equipment, then declared bankruptcy and abandoned the facility. The owner of the warehouse spent about $1.5 million to clean up the mess and sued 11 local governments to recover its costs under CERCLA.

Most of the municipalities settled, but two did not. After a bench trial, the court held that the defendants were responsible parties under CERCLA and imposed on them costs of about $240,000.

The SREA

The municipalities tried to avoid liability by arguing that they were exempt under the Superfund Recycling Equity Act (SREA), a law enacted in 1999 to protect those who send certain materials to a recycler. The SREA applies to “recyclable material,” which includes scrap paper, plastic, glass, textiles, metal, rubber (other than whole tires), and certain types of spent batteries.

The SREA spells out, for each type of recyclable material, the elements that must be proven to be considered exempt from CERCLA liability. The generator of recyclable material must demonstrate that, as of the time of the transaction:

  1. It sold the recyclable material.
  2. The recyclable material met a commercial specification grade.
  3. A substantial portion of the recyclable material was made available for use as a feedstock for the manufacture of a new saleable product.
  4. The recyclable material could have been a replacement or substitute for virgin raw material; or the product to be made from the recyclable material could have been a replacement or substitute for a product made from virgin raw material.
  5. The seller was in compliance with all applicable regulations regarding the recyclable material.
  6. For scrap metal, it did not melt the scrap metal before the transaction.
  7. For batteries, it did not recover the valuable components of the batteries.
  8. It used reasonable care to determine that the receiving facility was in compliance with all substantive requirements applicable to handling the recyclable material.

In Carolina Pines, the court essentially concluded that the defendants hadn’t met their burden of proving any of these elements.

Although the defendants argued generally that the recycling exception applied to their materials, they failed to present sufficient evidence that they fit within the exception. For example, no testimony was presented stating what a commercial specification grade is in this case, that the materials met a commercial specification grade, that there was a market for the recycled materials from 2013 to 2014 when the defendants’ e-waste was in the facility, or that a substantial portion of recyclable material was made available for use as a feedstock for new products.

The court relied on the plaintiff’s evidence that some of the material sent by the municipalities to Creative was not recyclable due to its condition and the way it was stored. The court didn’t specify what storage conditions caused the material not to be recyclable, but it noted that the warehouse was extremely full. The court also relied on the municipalities’ agreements with Creative, which allowed Creative to dispose of any of the defendants’ e-waste that contained hazardous materials.

Lessons from Carolina Pines

The Carolina Pines decision should serve as a clear warning about the risks involved whenever entities collect and sell their used electronic equipment for recycling. As environmentally-friendly as such programs may appear to be, the generators may face CERCLA liability if the recycler they deal with ultimately creates an environmental problem.

The decision should not be interpreted, however, to mean that anyone who sells used electronic equipment for recycling is outside the protection of the SREA. While it is true that electronic devices are not specifically listed as a “recyclable material,” they do consist primarily of recyclable materials such as scrap metal, scrap plastic and scrap glass.

When it passed the SREA, Congress explicitly stated that its purposes were to promote reuse and recycling, and to remove any disincentives and impediments to recycling “created as an unintended consequence of CERCLA.” A blanket rule that transactions involving used electronic equipment are not protected by the SREA would be inconsistent with these Congressional goals. Therefore, recyclers of used electronic equipment should be entitled to the exemption if they can prove that their transactions met the SREA’s requirements.

To minimize the possibility of CERCLA liability and secure the protection of the SREA exemption, municipalities and private companies that recycle electronics should adhere strictly to these guidelines:

  1. Contracts with recycler must describe the materials using the specific language of the SREA. Each contract should specify that the used equipment is being conveyed either for refurbishment and reuse, or for the purpose of recycling scrap plastic, scrap metal and scrap glass.
  2. The contract should include a representation by the recycler that the used electronic equipment meets commercial specification grades in the market. The recycler should be asked for supporting documentation.
  3. For their own recycling operations, they should develop and implement robust environmental compliance programs, with ample documentation and records.
  4. They should require the recycler to certify that it is operating in compliance with all laws and regulations applicable to the recycling process. They also should conduct an audit of their recycling companies to ensure that they are in compliance. Most recyclers are members of either R2 or eStewards, both of which include rigorous environmental requirements. Every recycler should be able to provide written assurances of its compliance status.
  5. They should ensure that their recyclers also follow SREA requirements for the scrap metal, plastic and glass that they produce and sell, so that any environmental problems at downstream facilities will not be imposed on the original generator.

By following these guidelines, public and private recycling programs should reduce the risk that they will be forced to pay for a Superfund cleanup long after their material has been recycled.

Stephen W. Earp is an attorney with Fox Rothschild LLP in Greensboro, North Carolina. He previously served as Managing Partner at Smith Moore Leatherwood LLP, which merged with Fox Rothschild in 2018. He can be reached at searp@foxrothschild.com.

 

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