U.S. v. SAPORITO: Superfund Liability for Equipment Leases
Sometimes bad facts make such bad law that change becomes obvious. We can only hope that this will be the result of U.S. v. Saporito.
The case involved a company named Crescent Plating Works. And the facts went downhill from there.
Without going into extensive detail, it is enough to say that the facility was highly contaminated based on plating operations that had occurred from the 1970s to 2003. There was disputed evidence with regard to whether the defendant, James Saporito, was an "operator" of the facility. In the end, however, it didn't matter.
The critical question before the court on the Government’s motion for summary judgment, was whether Mr. Saporito was an “owner” of the facility under Superfund at the time of the cleanup solely because of his undisputed ownership of equipment used in the plating process. There was no question that Mr. Saporito owned and leased equipment that was an integral part of the plating process but, like most other equipment lessors, Mr. Saporito did not manufacture, install, operate, maintain or direct the use of the equipment. Nevertheless, Judge Pallmeyer held Mr. Saporito liable for $1.5 million in cleanup costs as an “owner."
During the course of the summary judgment hearing, Mr. Saporito pointed out that there was no evidence offered that connected any of his leased equipment to any release or threatened release or to any cleanup costs. The court found that CERCLA requires no such connection to be shown. It was enough that the equipment was a necessary part of a platting process that caused a release of a hazardous substance. The equipment need not be the cause of the release.
Mr. Saporito next argued that while he may have owned the equipment, he was not an owner of a facility under CERCLA if all he was doing was leasing equipment to an independent party that then used the equipment to cause pollution. The court found that the plating line was “no less a facility than the land on which it operated.” Therefore, “an owner of equipment necessary to the operation of the plating line is no less an ‘owner’ than a part-owner of land.” In fact, according the court, the equipment owner is "arguably more culpable" than a land owner because “a land owner might not inquire into how her land is being used, but an equipment owner is likely to know exactly what her equipment can do.”
Apparently Mr. Saporito saw this disaster coming and argued to the court that the government’s position was absurd because it would make power companies (who supply electricity necessary to run the plating line) and cities (who provide water pipes necessary to allow the process to work) equally liable. The court, however, had an answer:
The court agrees with Defendant that holding these parties liable would be absurd, but does not share Defendant’s concern that the government’s theory leads to this result. Defendant’s equipment is similar to the power lines or water pipes in that it is necessary for the electroplating process, but under a common understanding of the word “owner,” the power company and the city are not owners of the plating line. Defendant, though, because he owned actual components of the plating line, is an owner.
I think the court has problems on this one, though not for the reasons given by Mr. Saporito. The question isn't whether, for example, the City is leasing equipment to the line and is therefore an owner; the question is whether the City owns part of the "facility," which is certainly possible. However, this doesn't save Mr Saporito.
What about the court’s admonition that the “equipment owner is likely to know exactly what her equipment can do?” Does this really have anything to do with environmental liability? If it does, the possible universe of potentially responsible parties has, once again, grown significantly. Certainly a lessor of a backhoe knows that the backhoe could be used to break through a gas pipe line or scoop up coal tar tailings. Certainly a lessor of plastic totes knows that a company might use the totes to store solvents that might be spilled or otherwise released. Certainly a company who leases chairs could know that a person might stand on them to throw the hazardous waste over the fence. (Well, maybe that last one is a reach. At least I hope it is.)
Buried in the opinion is the real basis for the ruling. It doesn't involve knowing how the equipment is going to be used or whether the machinery was integral to the process. It involves definitions. Under Superfund a "facility" is the buildings, structures, installation, equipment, pipe or pipeline, well, pit, pond, lagoon, impondment, ditch, landfill, storage container, motor vehicle rolling stock, aircraft or contaminated site or area. That's it. Is it fair to find the innocent landowner or the innocent building owner liable for the tenants environmental sins? Of course not, and usually it isn't necessary. Judge Pallmeyer had to reach farther in this case because that's where the solvent defendant could be found.
If the court is correct that the mere owner of leased
equipment, the operation of which is part of a line that results in a hazardous waste release, is responsible for the environmental cleanup caused by a sloppy lessee, the repercussions are significant. Certainly under the court’s analysis, all equipment that is actually used in the production line of a product where a hazardous waste release is identified would fall within the terms of the holding. That could include acid baths, printing presses, paint lines, white goods production and any line with a degreaser, among many others. If you just include equipment that, in some manner, touches a hazardous substance or is in a production line that uses a hazardous substance, you have already placed at risk a large number of very profitable leasing companies in the United States as well as the myriad equipment sale/leaseback arrangements that occur on a daily basis. If you add to this the equipment that a lessor should realize could possibly be used in a release, there isn't a lot left to safely lease.
The Saporito case is very disturbing in how far it goes to find a responsible party. Ownership liability under CERCLA has always been a broad concept, but this case seems to stand the concept on its head. If followed elsewhere, it is hard to believe that equipment leases aren't going to be hard to come by. If anything, the case should be a call to action. Since CERCLA was enacted, cases that have liberally construed the PRP provisions of Superfund have resulted in changes that provide limitations of environmental liability for lenders, trustees and bonafide prospective purchasers. Protection for lessors should be part of this group. It would certainly help to get us back to the principle that the “polluter pays.”
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CERCLA. The court noted that the term “facility enjoys a broad and detailed definition.” (For those who don’t read a lot of cases, this kind of language is a bad sign). The court then found that the sewer pipes can be deemed a facility because the statutory language identifies a facility as any site or area where a hazardous substance has been disposed of or comes to be located. The court could find no language to exclude the city’s sewer system, so it held that the pipe was a “facility” under CERCLA.
The facts of Bonnieview HOA are the ones that every developer fears. A seemingly innocuous parcel of ground is ripe for development in the lovely city of Montville, New Jersey. At some point in the past, the property had been an apple orchard, though a Phase I Environmental Site Assessment failed to note that the orchards may have used pesticides which may have contaminated the soils.