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United States v. Dico, Inc.

United States Court of Appeals, Eighth Circuit

December 10, 2015

United States of America, Plaintiff - Appellee
Dico, Inc.; Titan Tire Corporation, Defendants - Appellants

Submitted June 11, 2015.

Page 343

Appeal from United States District Court for the Southern District of Iowa - Des Moines.

For United States of America, Plaintiff - Appellee: Eric David Albert, Litigation Counsel, Sara C. Colangelo, Steven D. Shermer, Litigation Counsel, U.S. Department of Justice, Environment & Natural Resources Division, Environmental Enforcement Section Ben Franklin Station, Washington, DC.

For Dico, Inc., Titan Tire Corporation, Defendants - Appellants: Sergio E. Acosta, Joel David Bertocchi, Thomas D. Lupo, Hinshaw & Culbertson, Chicago, IL; Michael F. Iasparro, Hinshaw & Culbertson, Rockford, IL; Stephen H. Locher, Mark McCormick I, Belin & Mccormick, Des Moines, IA.

Before LOKEN, BYE, and KELLY, Circuit Judges. LOKEN, Circuit Judge, concurring in part and dissenting in part.


Page 344

BYE, Circuit Judge.

Dico, Inc. (" Dico" ) owned several buildings in Des Moines, Iowa, that were under an Environmental Protection Agency (" EPA" ) order regulating their use because of hazardous substance contamination. Without informing the EPA, Dico, through its corporate affiliate Titan Tire Corporation (" Titan Tire" ), sold the buildings to Southern Iowa Mechanical (" SIM" ), which tore them down and stored them in an open field where Polychlorinated Biphenyls (" PCBs" ) were later found. The government brought this action against Dico to recover damages for its cleanup costs and alleged that Dico violated the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (" CERCLA" ) by " arrang[ing] for disposal" of the PCBs in the buildings and also violated the EPA order governing use of the buildings. The district court found Dico liable for both violations, awarded response costs, civil penalties, and punitive damages. On appeal, Dico argues material

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issues of fact precluded summary judgment on the issues of liability and damages for both " arranger" liability under CERCLA and the EPA order violation. Dico also argues the district court erred in treating any alleged violation of the EPA order as a continuing offense. We reverse the district court's summary judgment order with respect to " arranger" liability under CERCLA and punitive damages but affirm the summary judgment order as to the EPA order violation and civil penalties.


In the mid-1970s, the EPA took interest in the Dico buildings at issue in this case because of the presence of trichloroethylene (" TCE" ) contamination in the groundwater around them. See generally United States v. Dico, Inc., 266 F.3d 864, 868 (8th Cir. 2001). The EPA required Dico to implement a groundwater extraction, treatment, and monitoring system. Later, the EPA also discovered pesticide and herbicide contamination in soils adjacent to several buildings in the area; specifically, Buildings 1 through 5 and the Maintenance Building. During the investigation for pesticides, the EPA discovered PCBs in the adhesive contained in the building insulation of all of the buildings except Building 1. Consistent with the findings in the environmental investigator's August 1992 report, the EPA issued an administrative order on March 4, 1994 (" EPA Order" ), requiring Dico to remove some of the PCB contamination and to encapsulate all remaining insulation to prevent any further release of PCBs.

Dico and the EPA then agreed on an operation and maintenance plan to address the PCB contamination. Dico submitted a report in 1997 (" 1997 Report" ), indicating it had completed the required removal. In its report, Dico did not assert that it had removed all PCB contamination and the author of the report testified that he believed some PCBs remained after the removal action. The EPA approved the 1997 Report but reminded Dico of its continuing obligations under the EPA Order. The operation and maintenance plan required Dico to inspect and maintain the encapsulated surfaces inside the buildings covered by the EPA Order. By 2002, Dico no longer occupied or used the buildings and did not want to continue the required testing under the EPA Order and operation and maintenance plan. The EPA and Dico agreed to discontinue the required testing with the provision that Dico provide annual reports on whether the buildings were back in use, which would again trigger the responsibilities and obligations under the operation and maintenance plan.

In 2007, Dico, through Titan Tire, entered into three separate transactions with SIM: one for the disassembly and removal of the Maintenance Building; one for the western portion of Building 3; and one for the purchase of Buildings 4 and 5 and a northern portion of the Production Building. Dico paid $1.00 per square foot to acquire these buildings.[1] Dico's intent in selling the buildings--whether Dico intended to actually sell the buildings or merely wished to rid itself of the responsibilities associated with the PCBs contained in the buildings--was heavily disputed before the district court and is the central issue in this appeal. After purchasing the buildings, SIM dismantled them and disposed of all materials except for the steel beams.[2]

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During a five-year inspection of the Dico site in September 2007, EPA Project Manager Mary Peterson observed that most of the buildings at issue were dismantled, and the EPA for the first time learned the buildings had been sold. The EPA sent a letter to Dico informing it that it will be responsible for any cleanup costs resulting from contamination associated with the disassembly of the buildings. The EPA then traced the steel beams to SIM's Ottumwa, Iowa, storage site, where it found them " in piles in a large open area, many in direct contact with the ground . . . and not protected from the elements," with visible insulation pieces attached. United States v. Dico, Inc., 892 F.Supp.2d 1138, 1145 (S.D. Ia. 2012). After taking samples from the steel beam piles and the soil in the area, the EPA confirmed the presence of PCBs in some of the beams, the soil, and the insulation attached to the beams. Although the EPA was able to determine the steel beams came from the Dico buildings, it had no way of tracing the specific origin of the PCBs and could not confirm whether the steel beams came from Dico's buildings that were subject to the EPA Order. The EPA eventually directed Dico to work with an environmental contractor to retrieve and dispose of the insulation that had been removed from the Dico buildings, which resulted in the removal of more than four tons of different types of insulation. Testing of the material revealed the presence of PCBs.


We review a district court's grant of summary judgment de novo, viewing the evidence in the light most favorable to the non-moving party and giving the non-moving party the benefit of all reasonable inferences. Dowell v. Lincoln Cnty., Mo., 762 F.3d 770, 775 (8th Cir. 2014). Summary judgment is proper only if the moving party satisfies its burden of demonstrating that no genuine issues of material fact remain for trial. Fed.R.Civ.P. 56(a).


CERCLA imposes strict liability for environmental contamination on

any person who by contract, agreement, or otherwise 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, 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) (emphasis added). " Arranger liability ensures that owners of hazardous substances may not free themselves from liability by selling or otherwise transferring a hazardous substance to another party for the purpose of disposal." Team Enters., LLC v. W. Inv. Real Estate Trust, 647 F.3d 901, 907 (9th Cir. 2011).

The statute does not define the word " arranged." However, in interpreting this statutory language, the Supreme Court has held the word " 'arrange' implies action directed to a specific purpose." Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 611, 129 S.Ct. 1870, 173 L.Ed.2d 812 (2009). Under this definition of the provision, the Supreme Court identified three possible scenarios: (1) " an entity [who] enter[s] into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance" would plainly be liable under CERCLA; (2) an entity who merely " sell[s] a new and useful product" to a purchaser who " unbeknownst to the seller, [later] dispose[s] of

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the product in a way that [leads] to contamination" would clearly not be liable; and (3) an entity who has " some knowledge of the buyers' planned disposal or whose motives for the 'sale' of a hazardous substance are less than clear" may or may not be held liable. Id. at 610.

In the third type of case, " the determination whether an entity is an arranger requires a fact-intensive inquiry that looks beyond the parties' characterization of the transaction as a 'disposal' or a 'sale' and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA's strict-liability provisions." Id. In Burlington, the Court specifically rejected the government's argument that " Congress intended to impose liability on entities not only when they directly dispose of waste products but also when they engage in legitimate sales of hazardous substances knowing that some disposal may occur as a collateral consequence of the sale itself." Id. at 611-12 (internal footnote omitted). Furthermore, the Court specifically rejected the notion that a seller's knowledge that a buyer would dispose of a hazardous substance would alone be sufficient to constitute arrangement for disposal:

While it is true that in some instances an entity's knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity's intent to dispose of its hazardous wastes, 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. at 612; see also Team Enters., 647 F.3d at 908 ( " While actions taken with the intent to dispose of a hazardous substance are sufficient for arranger liability, actions taken with the mere knowledge of such future disposal are not." ); Consol. Coal Co. v. Ga. Power Co., 781 F.3d 129, 149 (4th Cir. 2015) (" Anytime an entity sells a product that contains a hazardous substance, it also 'intends' to rid itself of that hazardous substance in some metaphysical sense. But intent to sell a product that happens to contain a hazardous substance is not equivalent to intent to dispose of a hazardous substance under CERCLA. For arranger liability to attach, there must be something more." ).

The only element of the liability language quoted above Dico disputes on appeal is that it " arranged" for disposal of the PCBs. It argues the buildings had at least some commercial value based on which a fact finder may find Dico did not intend to dispose of the PCBs by selling the buildings to SIM. We agree.

The district court noted the case " exemplifie[d] the practical difficulties in deciding whether an arrangement is a sale or disposal" but nevertheless concluded that no reasonable fact-finder could conclude Dico did not intend to dispose of the remaining PCBs when it sold the buildings to SIM. See Dico, 892 F.Supp.2d at 1153. In reaching its conclusion, the district court relied primarily on two " battery cracking" cases in which the district courts found the sellers to have " arranged for disposal" when they sold " junk" batteries to a scrap yard that was only interested in the lead within the batteries and would inevitably have to dispose of the contaminated battery casings. See United States v. Atlas Lederer Co., 282 F.Supp.2d 687 (S.D. Ohio 2001); Catellus Dev. Corp. v. United States, 34 F.3d 748 (9th Cir. 1994). The district court also relied on another district court decision in which the court found a seller " arranged for disposal" when it sold scrap copper wire to a scrap

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metal company knowing that the sole remaining useful purpose of this copper wire was to reclaim the copper, which required " removal and disposal of the insulation material covering the copper wire." EPA v. TMG Enters., Inc., 979 F.Supp. 1110, 1124 (W.D. Ky. 1997). Despite Dico's assertions that SIM intended to reuse the buildings after disassembly, the district court found Dico " presented no evidence that SIM was interested in any of the building components except for the steel beams." Dico, 892 F.Supp.2d at 1154. Accordingly, it reasoned that just like in the battery-cracking cases and the copper wire case, where the purchaser was only interested in one internal and valuable part of the sale which would subsequently and necessarily result in the disposal of the remaining parts, the seller arranged for disposal of a hazardous substance. Id. at 1154-55. In other words, the district court believed where the seller knew the buyer would use only part of the contaminated goods and would discard part of the contaminated goods, the seller, as a matter of law, arranged for disposal. However, under the Supreme Court's definition of " arrange," a seller's knowledge of eventual disposal alone is insufficient to find liability as a matter of law.

In relying on the above cases, the district court improperly focused too closely on the factual similarity between this case and the battery-cracking cases regarding what the buyer was interested in and how it would have to obtain the desired part rather than on the relevant question of the seller's intent with respect to the transaction. In the battery-cracking cases, the sale product was " junk." Accordingly, the district courts in those cases could have concluded at summary judgment--consistent with Burlington's directive that knowledge of inevitable disposal alone is not enough--that the seller was not selling a product but was intending to rid itself of a hazardous substance by transferring a useless product, where it knew disposal of a hazardous substance was certain. Where, however, the sale product has some commercial value and was part of a legitimate sale, even if the seller knows disposal will result, it is more difficult to hold that no reasonable juror could find the seller did not actually intend to sell the product but merely intended to discard the hazardous substance. See, e.g., Schiavone v. Ne. Utils. Serv. Co., No. 3:08CV429, 2011 WL 1106228, at *6 (D. Conn. Mar. 22, 2011) (finding that seller of transformers to a scrap metal yard for the " commercial value of the metal" did not arrange for disposal of a hazardous substance because even if the transformers contained PCBs and even if the seller knew the buyer would inevitably have to dispose of the hazardous substance, there was no " evidence that could support a conclusion that the [seller] had as a purpose in their dealings with [the buyer] disposing of [the hazardous substance]" ); United States v. B& D Elec., Inc., No. 1:05CV63, 2007 WL 1395468, at *5-6 (E.D. Mo. May 9, 2007) (finding that seller of operable, intact, and non-leaking transformers did not arrange for disposal of the hazardous substances contained in the transformers).

The parties before us, and other courts, have framed the issue on what has sometimes been referred to as the " useful product defense."

The defense prevents a seller of a useful product from being subject to arranger liability, even when the product itself is a hazardous substance that requires future disposal. In other words, a person may be subject to arranger liability " only if the material in question constitutes 'waste' rather than a useful product." A plaintiff can overcome the defense by showing that the substance involved in the transaction " has the

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characteristic of waste at the time it is delivered to ...

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