Cross-posted from Valpo Law Blog.

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On September 25, the Seventh Circuit vacated a trial court judgment that had found paper manufacturer NCR 100% liable for the costs of cleaning up polychlorinated biphenyls (PCBs) in Wisconsin’s Lower Fox River. Chief Judge Diane Wood wrote for the three-judge panel.

Judge Wood is not known for prolixity. So when she writes a 31-page opinion, you know it’s going to cover a lot of ground. (Specifically, you know it’s going to cover a lot more ground than this blog post.)

If you’re a fan of complex environmental litigation—and who isn’t?—you’ll want to read the whole thing.

This case goes back to NCR’s invention of carbonless copy paper in 1953. In Judge Wood’s acid phrase, that invention “solved a small problem and created a large one.”

Anyone who remembers wrestling with carbon paper might challenge the first part of Judge Wood’s statement. But the second part is beyond dispute. In less than twenty years, this handy product transformed the Lower Fox (home to the world’s largest cluster of paper mills) into a 39-mile-long toxic waste dump.

That’s because until the 1970s, NCR coated its carbonless copy paper with Aroclor 1242, a PCB mixture sold by Monsanto. PCBs are toxic at very low concentrations, and not only cause cancer but also disrupt the immune, endocrine, nervous, and reproductive systems.

According to the EPA, mostof the 250,000 pounds of PCBs from this period still rest on the bottom of the Lower Fox. But more than half have already escaped into Lake Michigan. Every year, a few hundred more pounds follow suit.

The cleanup of these PCBs is ongoing. A massive dredging operation along the lower stretch of the river is now in its sixth year. The total cost of the project will likely top one billion dollars. NCR has borne most of that cost itself, but naturally would like someone else to help foot the bill.

And as it happens, in addition to the PCBs that NCR released directly, some were also released by smaller mills that recycled NCR’s byproducts. The central question before the trial court was whether these recyclers should share in NCR’s liability under CERCLA.

The trial court ruled that they should not, chiefly because NCR knew about potential PCB risks long before the recyclers did. However, the Seventh Circuit found its reasoning unsatisfactory.

Liability for giant toxic cleanups like this is governed by CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act), which we last discussed here just two weeks ago.

This time around, CERCLA’s liability provision took center stage. 42 U.S.C.A §9613(f)(1) allows a trial court to apportion liability among potentially responsible parties “using such equitable factors as the court determines are appropriate.”

Leaning on an earlier Seventh Circuit ruling, Judge Wood noted that although CERCLA leaves the district court free to decide which equitable factors are important, the court must make that decision based on the totality of the circumstances. And to do so, the court must first have all the circumstances before it.

The problem was that the trial court couldn’t have had all the circumstances before it, because at the outset it limited discovery to just a subset of equitable factors. Under Kerr-McGee, Judge Wood wrote, that kind of pre-selection is unacceptable.

Judge Wood agreed with NCR’s contention that the trial court wrongly excluded three key factors: “the parties’ relative volumes of PCB discharges; sources of PCBs in the river other than carbonless copy paper; and the parties’ levels of voluntary cooperation with the government’s cleanup effort.”

Further, although Judge Wood accepted the trial court’s finding that NCR knew of the potential risks of PCBs earlier than the recyclers did, the court’s failure to explain why this factor outranked all others (such as the quantity of PCBs released before any of the parties knew of the risk) made it impossible to evaluate whether the trial court had abused its discretion or not.

The case now returns to the Eastern District of Wisconsin for further proceedings.

In complex and difficult cases like this, should a court be able to save time by pre-selecting the equitable factors it will consider? What do you think?