California Commercial Litigation and Business Counseling Law Firm
Specialized in Proposition 65

By William W. Funderburk Jr. and Lisa J. Morelli

© Copyright 2000 Daily Journal Corp. Reprinted with Permission.

William W. Funderburk Jr. and Lisa J. Morelli are partners with Stanzler Funderburk & Castellon. He works in the firm's Los Angeles office, and she works in the firm's Los Angeles and New Jersey offices. They represent two scrap recycling defendants, including Interstate Non-Ferrous, in the above case.

For at least the last century, scrap recyclers have provided a common-sense, intelligent alternative to landfilling and incineration. Passage of the federal Superfund law in 1980 by a lame duck Congress and president, however, threatened the recycling industry and created a market distortion preferring virgin feedstock materials over recycled feedstock materials.

At last adhering to the recycling industry's mantra that "scrap is not waste," Congress in November 1999 passed the Superfund Recycling Equity Act, Pub. L. No. 106-113, to exempt certain "generators" and "transporters" who recycle material in accordance with this law from liability under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601-9675, commonly known as the Superfund law.

This is only the third time in 20 years that Congress has changed the Superfund law significantly The stated purpose of the Superfund Recycling Equity Act, found in the Superfund law at Section 127, is to promote recycling and remove the disincentives and impediments to recycling created as an unintended consequence of Superfund.

Following passage of the Superfund Recycling Equity Act, some questioned whether the act applied to pending lawsuits involving recyclers. The U.S. District Court for the Eastern District of California recently held that it does, thereby handing recyclers a much-welcomed victory in the "scrap is not waste" battle over Superfund law liability.

In Department of Toxic Substances Control v. Interstate Non-Ferrous Corp., 97-5016 (ED. Cal. May 30, 2000), the District Court held that the Superfund law Section 127 applies to all parties and all transactions in this pending case. This decision is the first interpretation by a federal court addressing whether Section 127 applies retrospectively to pending cases not filed by the United States.

Given the high stakes involved for parties found liable under the Superfund law, courts from around the country that have pending before them actions involving the alleged Superfund law liability of entities, as well as persons who are engaged in recycling transactions, are likely to address the district court's analysis in the Interstate Nonferrous case.

The Superfund Law is a strict-liability statute, with joint-and-several and retroactive liability. In practice, this means that any and all parties who ever have handled waste materials now in a hazardous-waste site are potentially responsible for part or all of the cleanup cost. The intent of the Superfund law is for responsible parties to pay 100 percent of the cleanup costs, including the Environmental Protection Agency's (or other agency's) investigation and oversight expenses, for sites that are deemed hazardous.

Citing the Superfund law's remedial purpose, federal courts have interpreted broadly the law's provisions, which impose liability on those who "arrange for treatment or disposal" of hazardous substances. Many of these courts have ruled that arranging for recycling constitutes an "arrangement for disposal." See, e.g., Catellus Development Corp. v. United States, 34 F.3d 748 (9th Cir. 1994); State of California v. Summer del Caribe lnc.,821 F.Supp. 574 (N.D. Cal. 1993).

These rulings have had a significant negative impact on the recycling industry and placed recyclers at a competitive disadvantage to entities dealing in virgin materials.

In Interstate Nonferrous, the District Court agreed with the recycler defendants that, in passing the Superfund Recycling Equity Act, Congress intended to remove the hurdles placed on the recycling industry by the Superfund law's broad liability scheme and, significantly, that Congress intended to do so with respect to all pending actions other than those filed by the United States.

The factual background of the case is by now well-known to those in the recycling industry. During the 1970s and 1980s, scrap recyclers took various metal-containing materials to the "Mobile Smelting site," located in Mojave, for processing to recover the scrap metal, which included copper and aluminum. The site subsequently was found to be contaminated with heavy metals and dioxin.

The Department of Toxic Substances Control sued several companies and the US government in 1997 under state and federal law, including the Superfund law, for the cleanup of the site. More than 150 parties ultimately were named as potentially responsible parties in cross and third-party actions. Following the enactment of Section 127, the Department of Toxic Substances Control filed a motion for partial summary judgment that the statute did not apply to the Mobile Smelting case.

Section 127 expressly states, "The exemptions provided in this section shall not affect any concluded judicial or administrative action or any pending judicial action initiated by the United States prior to enactment of this Section." Section 127(i). This provision does not expressly address pending judicial actions filed by parties other than the United States.

The Interstate Nonferrous court found that the evidence of congressional intent (statutory language and discernible legislative intent) indicates that Section 127 is retrospective and that such evidence is interpretable as an "express command" as to its temporal reach. The court also concluded the statute does not have retroactive effect, rejecting the Department of Toxic Substances Control's argument that its "rights" would be impaired because the statute potentially eliminates a Superfund law claim that previously existed. The court reasoned that recyclers that satisfy the requirements of Section 127 should not have been liable in the first place under pre-Section 127 law.

Finally, the court concluded that the statute was merely a clarification, rather than a change, of existing Superfund law and that, for this reason as well, the statute has no retroactive effect.

Interstate Nonferrous is an important win for the recycling industry and is the first step in implementing Congress's stated purposes of promoting recycling of scrap material, creating greater equity in the statutory treatment of recycled vs. virgin materials and removing the disincentives and impediments to recycling created as an unintended consequence of Superfund's liability provisions.

The decision is not the end for recyclers, however. Recyclers still must demonstrate that they satisfy the criteria set forth in the statute for the liability exemption to apply. Barring an immediate appeal and stay of the litigation (the Department of Toxic Substances Control has requested that the court certify its order for interlocutory appeal), this issue will be the next phase of litigation in the Interstate Nonferrous case.

Also, despite the court's ruling, companies involved in the recycling industry still should expect to be hauled into court under the "arranging for disposal" prong of the Superfund law's liability scheme, especially when the recycling process involves the use or generation of hazardous materials. Nevertheless, recycling companies that are now involved in litigation may use Interstate Nonferrous to argue that they at least should be allowed to prove they meet the criteria of Section 127 and are, therefore, exempt from Superfund law liability.

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