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Sixth Circuit Holds that GE’s Sale of Railcars and Transformers to Railroad Does Not Give Rise to CERCLA Operator or Arranger Liability

The Sixth Circuit’s recent decision in American Premier Underwriters v. General Electric Company addressed the sometimes murky question under CERCLA of whether the manufacturer of a product is liable as an “arranger” or “operator” when it sells a product that releases hazardous substances into the environment.  __ F.4th __, No. 20-4010, 2021 WL 4272652 (6th Cir. 2021).  In this case, GE had designed, manufactured, and sold transformers and railcars that contained a coolant with PCBs to APU’s predecessor Penn Central Railroad.  The transformers and railcars were specifically designed to “burp” coolant under certain conditions, which had the effect of releasing PCBs into the environment at various railyards.  The court held that, under the facts of the case, GE was neither an “arranger” or “operator.”   

APU first argued that GE was an “arranger” under CERCLA because GE specifically designed the transformers to release coolant directly onto the roadbed upon reaching high pressures.  Following the Supreme Court’s decision in Burlington Northern, the court explained that “arranger” liability depends on whether the party “takes intentional steps to dispose of a hazardous substance.”  Here, the court found that while “environmental contamination was foreseeable” to GE and even commonplace with its transformers, disposal was “not the goal” of GE’s design.  Rather, the purpose of the design was to release pressure and avoid tank rupture. The court also found significance in the fact that the coolant was a “useful” product that was essential to the operation of the railcars, a factor that other courts have found weighs against arranger liability.  The evidence showed that the transformers were designed to minimize coolant loss, not to facilitate it.  The court therefore held that arranger liability was inappropriate.   

APU then argued that GE was an “operator” because GE had stationed employees at the railyards to train the railyard staff in handling the transformers and to oversee railcar maintenance.  This time relying on the Supreme Court’s decision in Bestfoods, the court explained that an “operator” under CERCLA is one who manages, directs, or conducts operations specifically related to pollution.  In the Sixth Circuit, this requires a showing that the party has “actual control” over a facility’s activities and performs affirmative acts at the facility where hazardous substances were disposed.  Here, the court found that APU failed to establish that GE exercised actual control at the railyards because GE’s employees merely offered “recommendations” to railyard staff.  They did not have the authority to direct railyard staff or control their activities.  And while APU pointed to the fact that GE reserved the right to void warranties if APU did not follow its advice, the court found that APU was always “free to ignore GE’s advice.”  Thus, operator liability was found to be a “poor fit” in this case. 

Finally, APU also tried to shift liability to GE on the basis of contract, but the court found that these contractual claims were either time-barred or assigned away.  The appeal was therefore resolved entirely in GE’s favor.  The case will stand as important precedent in the Sixth Circuit regarding the scope of CERCLA operator and arranger liability.