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Court Rules Arranger Must Know or Should Have Known of Hazardous Properties for Liability to Attach

There are surprisingly few cases addressing whether, for an entity to be liable as an arranger under CERCLA, it must have known that the disposed substance was dangerous or hazardous. On March 10, 2022, in City of Las Cruces and Dona Ana County v. The Lofts at Alameda, LLC, the U.S. District Court for the District of New Mexico became the third federal district court to answer this question directly.

Two local government entities sued American Linen for cost recovery and contribution, alleging its decades-long operation of dry cleaning facilities caused them to incur costs to remediate a plume of contaminated groundwater. Specifically, the plaintiffs asserted that American Linen instructed its employees to dispose of PCE-laden wastes off site and that it contracted with a truck hauler to transport these wastes to a dump site three miles away. American Linen moved to dismiss, arguing principally that at the time of disposal, it did not know the wastes were hazardous substances.

The court first analyzed the seminal decision on the requisite intent for arranger liability, Burlington Northern and Santa Fe Ry. Co. v. United States, 556 U.S. 599 (2009). There the Supreme Court determined that the defendant Shell Oil Company’s knowledge that some spills and leaks occurred during transport of a substance it intended to sell was not sufficient to establish arranger liability under CERCLA. Since Shell did not knowingly take intentional steps to dispose the substance, the Court held it did not arrange for the disposal of that substance. In so holding, the Court emphasized that the term “arrange for” presupposes intentional conduct—that is, one cannot accidentally arrange for something to be disposed.

What Burlington Northern did not address, however, was whether the alleged arranger must have intended to knowingly dispose of hazardous substances—which was squarely the issue in City of Las Cruces case. Ultimately the District of New Mexico concluded the answer to that question is a qualified yes, explaining that “[o]ne cannot be liable [as] an arranger unless one knew or should have known that the material for which they arranged disposal contained a hazardous substance.” (emphasis added). This standard, the Court explained, is faithful to Burlington Northern’s requirement of intent, “yet does not allow for polluter to avoid liability simply by claiming ignorance.”

Although the complaint in City of Las Cruces did not assert American Linen actually knew the waste it disposed of was hazardous, it did sufficiently allege that American Linen should have known it was hazardous. The waste had an obnoxious odor, employees working with it felt “high,” and it turned their skin dry and white. The court explained that these “are not characteristics of a harmless substance.” Thus, because American Linen should have known about the inherent hazardous nature of the waste, it could be liable as an arranger under CERCLA.

By establishing a “knew or should have known” standard for arranger liability, which is the hallmark of many other tort claims, including negligence, the City of Las Cruces case is a noteworthy extension of the principles outlined in Burlington Northern. If American Linen appeals the decision, it would lead to the first circuit court decision on the issue of intent with respect to a party’s knowledge of the hazardous nature of disposed substances.