Full Court Press

On Nov. 19, 1999, President Clinton signed the Superfund Recycling Equity Act of 1999 (SREA) into law. SREA recognizes that recycling is an activity distinct from disposal, and that recyclable materials are not waste.

SREA seeks to correct the unintended consequence of Superfund that actually discouraged legitimate recycling. SREA affords recyclers a new defense to “arranger” and “transporter” liabilities involving recyclable materials. Prior to SREA, defenses to Superfund were few, narrowly defined and difficult to demonstrate. (The new defense is subject to conditions and limitations. Thus it is not a grant of absolute immunity.)

Like the initial Superfund law (also known as CERCLA-Comprehensive Environmental Response, Compensation and Liability Act), SREA has become the subject of litigation and judicial interpretation.

To date, the litigation has focused on a subsection of SREA that limits the application of the recycler’s exemption. Two questions raised by the subsection are: does the exemption apply to pending cases, and to what extent will the exemption be available in actions initiated by parties other than the U.S. government?

Four cases that have considered these ambiguities provide the subject of this article:

• United States vs. Atlas Lederer Co. (S.D. Ohio, Feb. 16, 2000)

•Department of Toxic Substances Control vs. Interstate Non-Ferrous Corp. (E.D. Cal., May 25, 2000)

• Morton International Inc. vs. A.E. Staley Mfg. Co. (D.N.J., July 19, 2000)

• Gould Inc. vs. A&M Battery & Tire Service (3rd Circuit Court, Oct. 31, 2000).

UNITED STATES VS. ATLAS LEDERER CO.

Eight years before the enactment of SREA, the U.S. commenced a CERCLA action against the owner of a site contaminated by hazardous waste. Livingston & Co. Inc. was named as a potentially responsible party (PRP)-a term that became familiar to scrap recyclers in the past two decades.

Livingston moved for a judgment of non-liability and then sought to supplement its motion to include the recycler’s exemption defense accorded by the newly enacted SREA. It should be noted that subsection 127 (i) of CERCLA, added by SREA), expressly states the recycler’s exemption shall not affect any pending judicial action initiated by the United States.

Livingston argued the statute’s limiting language did not apply to the cross-claims and third-party claims asserted in its case. Livingston reasoned that if the limiting language of sub-section 127(i) was meant to apply to every existing pending claim, the reference to the “United States” would not have been necessary. To buttress its position, Livingston cited comments by Senator Daschle (a sponsor of SREA) in the Congressional Record that states “Congress intends that any third-party action . . . shall be considered a private party action, regardless of whether the original lawsuit was brought by the United States.”

The court rejected Livingston’s argument, explaining that the term “action” may comprise numerous claims, including cross-claims, counter-claims and third party claims, and therefore the claims in the Atlas Lederer case “all constitute part of the same pending judicial action brought about by the United States to recover response costs under CERCLA.” Thus, PRP Livingston was not able to seek relief under SREA.

DEPT. OF TOXIC SUBSTANCES CONTROL V. INTERSTATE NON-FERROUS CORP.

In 1997, the State of California Department of Toxic Substances Control (DTSC) filed a CERCLA action seeking contribution for clean-up costs from parties who sold scrap metal to the Mobile Smelting site in Mojave, Calif.

In January of 2000, the Department filed the action discussed here, asking the court to rule that the recyclers’ exemption of SREA does not apply to the pending action initiated by the department-a state agency. Thus, the DTSC court addressed the questions of whether SREA may be applied to the case then pending (i.e. the law’s “temporal reach”) and whether the Department was within the meaning of the “United States” as used in subsection 127 (i).

Regarding temporal reach, to determine whether SREA may be applied to a pending case, the court applied the tests stated in two cases: Landgraf v. USI Film Products and Piamba Cortes v. American Airlines Inc.

The DTSC court explained that Landgraf’s first inquiry determines whether a statute is retrospective, while the second inquiry examines whether the statute is retroactive.

A statute is retrospective if it applies to pending cases; a retrospective statute is retroactive if it attaches new legal consequences to prior acts.

The defendants DTSC offered various arguments as to why Congress’ intent could be inferred from the language of the statutes. The court declined to accept the arguments because the inferences simply did not demonstrate the statute’s plain meaning. The court noted, “the language of [SREA] alone does not contain an express command or unambiguous directive that the statute is to be applied retrospectively to pending judicial actions brought [by] a state.”

With no express or unambiguous mandate, the court examined several aspects of the statute’s structure, as well as SREA’s legislative history, to discern Congressional intent. Ultimately, the court concluded that SREA expresses clear Congressional intent that SREA’s recycler’s exemption be applied retrospectively.

Despite the court’s conclusion concerning retrospectivity, DTSC argued that the application of SREA in this case would have improper retroactive effect. DTSC argued its “rights are impaired because [SREA] has deprived [the Department] of the right to seek contribution against a certain class of parties.”

However, the court answered by observing that no rights have been impaired because “recyclers who can satisfy the requirements of Section 127 should not have been liable under the pre-127 law, and are not proper sources of recovery.” These were very satisfying words for recyclers to hear.

An alternative approach considered by the court yielded more good news for scrap recyclers. To help determine retroactivity, the court considered an approach outlined in Piamba Cortes v. American Airlines. Using this approach, a statute is scrutinized based upon whether it clarifies rather than changes existing law. “If the statute clarifies, it is presumed to be retrospective, but not retroactive.” Under Piamba Cortes, if a statute is deemed a clarification, it accurately restates the prior law, and there is no need for a Landgraf analysis because the law statute has no retroactive effect.

Needless to say, the defendants in DTSC argued SREA is a clarification, and the Department maintained SREA adds an entirely new section to Superfund.

The court ultimately held that, under the Piamba Cortes test, SREA was a clarification of existing Superfund law. In reaching its decision, the court considered the plain language of SREA, its textual structure, the context in which SREA was enacted (i.e. the landscape of prior court decisions concerning Superfund liability for “recycling” transactions) and SREA’s legislative history.

•The Statute’s Plain Language: As stated in its Landgraf analysis, the DTSC court again recognized SREA’s text does not expressly state it applies to pending judicial actions filed by state agencies. Therefore, the court continued with the balance of its Piamba Cortes analysis to ascertain whether SREA was a clarification or change of existing law.

•Textual Structure: Here, after considering SREA’s purpose-to remove the disincentives and impediments to recycling created as an unintended consequence of Superfund-the DTSC court found that SREA’s stated purpose “is strong evidence Congress intended to bring uniformity to federal court decisions involving recycler CERCLA liability.” The court also considered the statute’s repeated use of the term “Clarification” in its titles to “support a finding [that] the legislature intended Section 127 to be a clarification” of existing law.”

•Context of the Enactment: The DTSC court examined several prior cases deciding recyclers’ Superfund liability for transactions involving scrap materials including steel, lead battery plates, spent automobile batteries and slag. The court found there to be significant conflict and inconsistency in prior judicial interpretations of whether such scrap transactions were the sale or recycling of useful products, or whether they were, in fact, arrangements for the disposal of hazardous wastes or substances.

In light of the conflict and inconsistency in prior case law, the context under which SREA was enacted and its legislative history, the court determined that the most reasonable interpretation “is that Congress meant to clarify, not change; eliminate ambiguity and conflict; and bring uniformity and certainty to recycler liability under CERCLA.”

• SREA’s Legislative History: The DTSC court noted no sponsor or non-sponsor of SREA stated the statute is not a clarification and that, on balance, “the legislative history strongly supports the finding that SREA is a clarification of recycler liability under CERCLA.”

Thus, the court held that, under both the Landgraf and Piamba Cortes analyses, SREA is not retroactive-a favorable result for recyclers.

The second questions the DTSC court needed to address is whether the Department is to be deemed the “United States” for the purpose of SREA. If so construed, the defendants would be precluded from asserting the recycler’s exemption defense.

The court held that “a state” and the United States are not equivalent for the purpose of interpreting SREA. Furthermore, the court found that Congress could have easily included states within Section 127’s carve-out if it so desired, and the fact that it did not include the states or state agencies is clear evidence that Congress did not intend the exception to the Superfund Recycling Equity Act to apply to pending state or state-agency initiated actions.

The DTSC court denied the relief sought by the state of California, and held that the recycler’s exemption applies retrospectively to all parties in that pending action-a very positive decision for recyclers.

Morton International Inc. v. A.E. Staley Manufacturing Co.

In 1996, the owner and former owner-operators of a mercury-manufacturing site commenced a Superfund contribution action against companies that allegedly arranged for the disposal of hazardous substances at the site. In 1999, the defendants in this “contribution action” filed a motion to amend their answers and to add the recycler’s exemption defense afforded by the newly enacted SREA. The Morton court considered whether the recycler’s exemption extends to private party actions and also whether SREA applies to future cases only or to cases pending when SREA was enacted (i.e. the law’s temporal reach.)

Regarding private party actions, the Morton court recognized the clear command of Section 127, that is, the recycler’s exemption “shall not affect... any pending judicial action initiated by the United States…” Furthermore, the court noted that Section 127 “does not state that [the exemption] applies to all actions except those commenced by the United States.”

The plaintiffs argued that “Congress’ silence on how other types of actions should be addressed does not mean that Section 127 applies in all other situations.” To reach the conclusion that the exemption applies to pending actions commenced by a state or private party, the court would need to infer that Congress intentionally used a negative inference, that is, it chose not to mention certain pending cases because it intended that the recycler’s exemption to apply to all such cases.

The court recognized that such negative inferences are permissible and, in fact, disagreed with the plaintiffs and found that “[b]ased on the plain meaning of the statute, it appears that Congress intended the recycling exemption to apply to State-initiated and private party actions, and only not to United States-initiated actions”- a positive result for recyclers seeking the protection of SREA.

In addressing the temporal reach of SREA (whether it applies to pending cases or only future cases), the Morton court applied the Third Circuit’s test of two United States Supreme Court decisions-Landgraf v. USI Film Products (1994), and Lindh v. Murphy (1997).

Under the Landgraf-Lindh approach, the court must first determine if lawmakers expressed a directive that the law is retroactive. If not, the court then must determine if lawmakers intended that the law apply to future cases only. If the court cannot determine such intent, then the court must determine the temporal reach of the law.

Although the Morton court recognized negative inferences are permissible in a retroactivity analysis for the purpose of determining Congress’ intent as to the availability of the recycler’s exemption in State-initiated and private party actions, the court observed more than a negative inference alone is required to find intent to apply a statute with retroactive effect. There being no explicit statutory language commanding the retroactive application of the statute, the court continued its analysis to determine legislative intent.

Since the Morton court found no express unambiguous Congressional directive that SREA should apply retroactively, it then considered whether Congress intended that the statute apply only prospectively (to future cases). The court observed that the text of a statute is the best source for gleaning legislative intent. However, where the text of the statute is indecipherable, a court should turn to the legislative purpose of the statute as revealed by the statute’s history.

The Morton court found that SREA, on its face, appears to apply retrospectively, but, nevertheless, the court chose to review the statute’s legislative history. Arguably, the legislative history of SREA is scarce. However, the court took note of the fact that since 1994, similar Congressional discussions were undertaken and other bills were proposed to correct the unintended effect Superfund had on legitimate recyclers and recycling transactions. In particular, it noted the recycler’s exemptions proposed in H.R. 4916 of the 103rd Congress and S. 2180 of the 105th Congress. Thus, the court surmised it is possible Congress concluded additional legislative history was unnecessary when it enacted SREA in 1999.

After having reviewed both SREA’s language and relevant legislative history, the Morton court concluded Congress did not intend that SREA apply prospectively only. Having found no express unambiguous Congressional directive that SREA should apply retroactively, nor having been able to discern Congressional intent that SREA apply prospectively only, the court continued its analysis to determine the statute’s effect.

The Morton court considered the nonexclusive factors set forth in Landgraf to determine whether a statute is retroactive. A statute is retroactive if it:

(a) impairs the rights a party had when the party acted

(b) increases a party’s liability for past conduct, or

(c) imposes new duties with respect to a transaction already completed. In addition, the court considered whether the retroactive application of the statute results in manifest injustice.

The plaintiffs-those seeking to collect from recyclers-did not argue that their rights were impaired. Rather, they argued that “because of basic notions of fairness and the belief that the law should not disrupt settled expectations, there is a strong presumption against retroactive application of any law that cannot be overcome without a clear statement by Congress that the law should have such effect.”

The court noted Superfund is retroactive and, therefore, it follows that SREA’s defense to Superfund liability should be retroactive as well. The Morton court also observed that, even if available, SREA’s recycler’s exemption is not automatic-to the contrary, proponents of the defense must demonstrate by a preponderance of the evidence they prevail on the exemption. In view of this observation, the court could not conclude that any rights were impaired, new duties were imposed, or that liability was increased.

Ultimately, the Morton court determined that Section 127 has retroactive effect. Nevertheless, it held that “Congress has provided for retroactivity of Section 127 in a manner that was sufficiently express and unambiguous.” Furthermore, the court held that Section 127 should be applied retroactively to state-initiated and private party actions because the statute’s text, purpose and legislative history support the determination.

Lastly, the court concluded Section 127 is a clarification of existing law rather than a change of existing law, and the retrospective application of Section 127 will not produce substantially inequitable results.

In sum, the Morton court found in favor of the recyclers, granting the defendant’s motion, thereby permitting the defendants to amend their answers and add the recycler’s exemption defense to the pending action.

Gould, Inc. v. A & M Battery & Tire Service

From 1961 to 1980, the Marjol Battery and Equipment Company operated a recycling facility in Pennsylvania. Gould Inc. acquired the site in 1980. At the site, spent lead acid batteries were broken and lead was reclaimed from the batteries. Marjol routinely discarded the hard rubber and plastic battery casings at the site. The casings were contaminated with lead and other toxic substances which eventually contaminated both Marjol’s site and neighboring property.

State and federal agencies investigated the site and in 1988 and 1990 Gould entered consent orders providing for the cleanup. In 1991, Gould initiated a CERCLA contribution action against 240 potentially responsible parties. All but four defendants settled with Gould. In this action, the remaining four defendants pursued their claim that the recently enacted SREA shields them from liability. Once again, the applicability of the recycler’s exemption would turn upon the language of Subsection 127, (i).

Once again, the question of how broadly or narrowly to define “United States” was raised. The Gould court held that the express language of Section 127 precludes two categories of actions from the benefit of a retroactive application of the recycler’s exemption:

(1) all actions concluded as of November 29, 1999, whether administrative or judicial, and

(2) pending actions initiated by the United States prior to November 29, 1999, but only if they are judicial in nature.

The court concluded that “[b]y implication or negative inference, then, Congress intended the Act to apply retroactively to all other types of actions.”

Gould argued that whenever a private party initiates a judicial action following a related federal administrative action, the causal link between the two requires the court to deem the judicial action to have been initiated by the “United States.” Unlike the Atlas Lederer court, the Gould court rejected this “bootstrapping” approach. The Gould court found that such a construction of Subsection 127, (i) “is belied not only by the Act’s plain language, but also by its legislative history.”

Similar to the Morton court, the Gould court noted that “much of [SREA’s] relevant legislative history was created in connection with its failed predecessors.”

Having considered SREA’s history, the court declared the intent expressed throughout its history, “even if not controlling, clearly support[s] a common-sense construction of the Act that applies retroactively to private party actions such as this.”

Gould also advanced a Constitutional argument to support its action against PRPs. It argued that the retroactive application of SREA violates the due process guarantee of the Fifth Amendment of the U.S. Constitution because the statute lacks a rational basis. Specifically, Gould argued that SREA creates an arbitrary classification which rewards recalcitrant PRPs who force the United States to expend it efforts and resources, and at the same time punishes a “responsible” PRP, like Gould, which cleaned the site.

Fortunately for recyclers, the Gould court rejected this argument. The court found that “the distinction between private party and federally initiated judicial actions is rationally related to preserving the public [treasury].”

The court explained, for example, that the distinction ensures that once the United States has expended funds to initiate a judicial action, it protects the expenditure by precluding availability of the exemption. In doing so, SREA “rationally distinguishes between the United States, a non-culpable party, and a party such as Gould who actually contributed to the contamination underlying its claim for contribution.” Thus, the court held that SREA applies retroactively without violating due process.

Lastly, Gould argued that SREA’s exemption does not extend to the transactions in question because part of the shipments were waste. Gould claimed that the exemption does not apply unless every component of the spent lead-acid battery is recyclable.

Because the batteries sold to Marjol included those having non-recyclable hard rubber casings, the defendants are not entitled to the exemption. The court rejected that argument as well, noting that neither the language of the Act nor its legislative history support such an interpretation.

In sum, the Gould court held that Congress intended that SREA apply retroactively to pending judicial actions initiated by private parties prior to its enactment and vacated the lower court’s judgment allocating liability to the defendants.

As with CERCLA before it, SREA appears to have left some ambiguities for the courts to resolve. The year 2000 has seen the first few rounds of judicial interpretations of the Superfund Equity Act of 1999.

Although it appears that the majority of decisions seen thus far bode well for the scrap recycling industry, it is likely that SREA will be the focus of more litigation as parties seek to determine the protections it offers to recyclers. Those in the scrap industry should stay tuned. RT

The author is a practicing attorney based in Springfield, N.J. He formerly owned and operated a scrap metal processing and trading company (J&J Metals, Newark, N.J.), actively supported Superfund reform, and served on Congressman Bob Franks’ Superfund Advisory Council.

[This article is provided solely for the general interest of the reader. The article and its contents are not intended as, nor should it be construed as, legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to factual situations.]