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FMC Corp. v. U.S. Dept. of Commerce

filed: July 5, 1994.


On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil No. 90-01761). Reargued in banc April 26, 1994

Before: Sloviter, Chief Judge, and Mansmann and Greenberg, Circuit Judges Before: Sloviter, Chief Judge, and Becker, Stapleton, Mansmann, Greenberg, Hutchinson, Scirica, Cowen, Nygaard, Alito, Roth, and Lewis, Circuit Judges.

Author: Greenberg


GREENBERG, Circuit Judge.


The United States and the United States Department of Commerce appeal from a final judgment entered on September 17, 1992, by the United States District Court for the Eastern District of Pennsylvania. The court held the United States jointly and severally liable, as an "owner," "operator" and "arranger," for response costs for which the plaintiff FMC Corporation is or will be responsible under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") to clean up hazardous waste created at an industrial facility during World War II. FMC acquired this facility many years after the war. The district court entered the final judgment in accordance with its opinion of February 19, 1992, reported as FMC Corp. v. United States Dep't of Commerce, 786 F. Supp. 471 (E.D. Pa. 1992). FMC brought this action because the Environmental Protection Agency ("EPA") sought to recover the response costs from it. FMC seeks contribution, claiming that the United States also is liable because the War Production Board ("WPB"), which later was subsumed within the Department of Commerce, owned parts of the facility, operated the facility during World War II, and arranged for the disposal of the wastes created. FMC and the United States have settled the claim against the United States as an "owner," but the government contends that its conduct other than as an owner was regulatory activity from which the United States is protected from liability by its sovereign immunity. It further argues that, in any event, it was neither an "operator" nor an "arranger" within CERCLA. Accordingly, it contends that it cannot be liable other than as an owner. We reject the government's contentions and thus will affirm.

A. Statutory Background

Section 104 of CERCLA empowers the government to use money from the "Superfund" to clean up hazardous waste sites. 42 U.S.C. § 9604(a). Section 107(a)(1)-(4) provides that any "person" who: (1) is the "owner" or "operator" of a facility where there is a release or threat of release of a hazardous substance, (2) was the "owner" or "operator" of a facility at the time of the disposal of a hazardous substance, (3) "arranged" for such disposal, or (4) "accepted" a hazardous substance for transport to a facility, is liable for the response costs, i.e., the costs of removal and other remedial action incurred by the United States. 42 U.S.C. § 9607 (a)(1)-(4). Thus, an entity, such as FMC, which becomes an owner of a facility after the disposal of the hazardous waste is liable under CERCLA. Liability for the costs incurred is strict. United States v. Alcan Aluminum Corp., 964 F.2d 252, 259 (3d Cir. 1992). Section 101(21) defines "person" to include the "United States Government." 42 U.S.C. § 9601(21).

From its inception, CERCLA has included a provision waiving the sovereign immunity of the United States and, as amended by the Superfund Amendments and Reauthorization Act of 1986, Pub. L. 99-499, § 120, 100 Stat. 1613, 1666 (1986), CERCLA section 120(a)(1) includes the following waiver provision:

Each department, agency, and instrumentality of the United States (including the executive, legislative and judicial branches of government) shall be subject to, and comply with this chapter in the same manner and to the same extent, both procedurally and substantively, as any nongovernmental entity, including liability under section 9607 [CERCLA section 107] of this title.

42 U.S.C. § 9620(a)(1) (emphasis added).

Persons assessed by the United States with response costs under CERCLA may "seek contribution from any other person who is liable or potentially liable under section 9607(a) of this title [CERCLA section 107(a)], during or following any civil action under section 9606 of this title or under section 9607(a) of this title." 42 U.S.C. § 9613(f)(1). Therefore, we are concerned on this appeal with the related but nevertheless distinct questions of whether the sovereign immunity of the United States bars this action against it, except as an owner, and whether the United States, if not immune, is liable either as an operator or an arranger, or both.

B. Factual Background

The facility at issue in this case is located in Front Royal, Virginia, and was owned by American Viscose Corporation from 1937 until 1963, when FMC purchased it. In 1940, American Viscose constructed a plant on the Front Royal site and began manufacturing textile rayon. Before World War II, the machines at the facility were not set up to produce high tenacity rayon. However, after Pearl Harbor, the government determined that the country needed increased production of high tenacity rayon for the manufacturing of war-related products, including airplane and truck tires. Inasmuch as the demand anticipated for high tenacity rayon greatly exceeded the projected supply, the WPB commissioned American Viscose to convert its plant to make high tenacity rayon and American Viscose did so.

Unquestionably, at least by current standards, environmental controls were lax at the facility. Thus, it is not surprising that inspections in 1982 revealed carbon disulfide, a chemical used in manufacturing high tenacity rayon, in the ground water in the vicinity of the plant. Consequently, the EPA began cleanup operations and notified FMC of its potential liability under CERCLA. In 1990, FMC filed this suit against the Department of Commerce under section 113(f) of CERCLA, 42 U.S.C. § 9613(f), and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02. FMC alleged that, as a result of the government's activities during World War II, the United States was jointly liable with FMC as an "owner" and "operator" of the facility, and as an "arranger for disposal" of hazardous wastes there. In particular, FMC claimed that the government became involved so pervasively in the facility that it effectively operated the plant along with American Viscose and, accordingly, should share in the response costs.

The government filed a motion to dismiss, arguing that the United States could not be shown to have been an operator or an arranger for disposal within the meaning of CERCLA, as its activities affecting the facility were regulatory. The district court rejected the government's position, holding that the United States is liable, regardless of the nature of its activities, whenever the government's "involvement or control becomes so pervasive or significant as to warrant the imposition of CERCLA liability."

In a subsequent motion for partial summary judgment, the government argued that it had not waived sovereign immunity under CERCLA for purely regulatory activities and that, in any event, its activities at the site did not rise to the level of ownership or operation necessary for the imposition of liability under the statute. The district court denied the motion, holding that there were disputes of material fact relating to the owner and operator issues concerning the extent of the government's activities at the plant. In March 1991, the district court held a four-day non-jury trial on the liability issues.

Subsequently, in an opinion issued February 20, 1992, the district court held the government liable on all three theories articulated by FMC: as an owner, operator, and arranger. See FMC Corp. v. United States Dep't of Commerce, 786 F. Supp. 471. The liability period for these categories varied, and no period was identified specifically for "arranger" liability, but all fell between January 1942 and March 1948.

The trial consisted largely of the introduction of documents as most persons with knowledge of the activities at the facility during the war had died. But the parties also introduced depositions, and there was some in-court testimony. Based on this evidence, the district court made extensive findings of fact, many if not most of which are not in dispute, and which we only need summarize.

The facility is a 440-acre site and includes a manufacturing plant and 23 waste disposal basins and landfill areas. The plant was owned and operated by American Viscose from 1940 to 1963, FMC from 1963 to 1976, and Avtex Fibers-Front Royal, Inc. from 1976 to 1989. American Viscose is now out of business, and Avtex is in bankruptcy reorganization. Id.

In January 1942, an executive order established the WPB. The WPB was empowered to issue directives to industry regarding war procurement and production, including directives concerning purchasing, contracting, specifications, construction, requisitioning, plant expansion, conversion, and financing. Moreover, in 1942, the WPB's powers were expanded to include the seizure and operation of non-complying industries. Id. at 474-75.

At the outset of the war, the United States lost 90% of its crude rubber supply because the Japanese occupied parts of Asia from which this country previously had obtained rubber. Consequently, we turned to synthetic substitutes, like high tenacity rayon, to strengthen and lengthen the life of heavy duty truck and aircraft tires, thus reducing natural rubber consumption. The WPB designated high tenacity rayon as "one of the most critical [products] in the entire production program." Id. at 474-75. The WPB required American Viscose to convert the Front Royal facility to enable it to produce high tenacity rayon, and the facility became one of the few plants in the country manufacturing that product. The WPB's requirement that American Viscose convert the facility and expand its capacity to produce high tenacity rayon diverted the facility's resources from the production of regular textile rayon. Id. at 477.

The government considered facilities producing high tenacity rayon to be "war plants" subject to its maximum control. The director of the WPB's Textile, Clothing and Leather Division, the division directly responsible for high tenacity rayon, regarded the American Viscose facility to a considerable extent to be a government project directly related to the war effort. Inasmuch as the facility was used for a program critical to the success of the war effort, if American Viscose did not comply with the government's production requirements, the government would have seized the facility. Indeed, during the war the government took over numerous plants which failed to meet production requirements, including a plant producing high tenacity rayon owned by American Enka Corporation. Id. at 475-76.

To implement the required plant conversion and expansion, the government through the Defense Plant Corporation ("DPC") leased government-owned equipment and machinery for use at the facility, including 50 spinning machines, an acid spin bath system, piping for the spinning machines and spin bath system, slashing equipment, and waste trucks. But the government did not allow American Viscose to install the leased equipment. Instead, the government contracted with Rust Engineering Company to design and install the DPC-owned equipment at the facility. Under its contract with Rust, the government had substantial control over and participation in the work related to the DPC equipment. For example, all plans, specifications, and drawings were submitted to the DPC for approval; Rust had to obtain prior DPC approval for the purchase of supplies; DPC could promulgate rules governing all operations at the work site and require the removal from work of any Rust employee; and DPC was represented on-site by a government representative, who had the right to direct Rust. The government collected rent from American Viscose on the machinery through 1947, and owned the machinery until March 1948. Id. at 478.

The five principal components of high tenacity rayon, sulfuric acid, carbon bisulfide, wood pulp, chemical cotton liners, and zinc, were quite scarce during the war. To assure American Viscose an adequate supply of sulfuric acid, the government built and retained ownership of a sulfuric acid plant adjacent to the facility. The plant was connected to the facility through a pipeline, and virtually its entire output was delivered through the pipeline. To satisfy the facility's need for carbon bisulfide, the government commissioned Stauffer Chemical Company to build a plant in the Front Royal area to produce 26.4 million pounds of carbon bisulfide per year. The government required American Viscose to use the raw materials that it obtained from the government or through the use of a government priority rating system for the specific purpose authorized. As a result of the government's involvement in the production of the basic raw materials necessary for manufacturing high tenacity rayon, and its control over the distribution of these raw materials, it determined the operating level of each rayon manufacturer. Id. at 479-80.

In October 1942, the WPB ascertained that the labor force in the Front Royal area would be inadequate to meet future needs at the facility. Consequently, the government obtained draft deferments for personnel at the facility, directed workers in other industries to come to the plant, and provided housing for the additional workers. The government also participated in managing and supervising the workers, by sending personnel to investigate and resolve problems involving worker productivity, to cut down on absenteeism, and to resolve labor disputes. In May 1944, the WPB appointed a full-time representative to reside at Front Royal to address problems at the facility concerning manpower, housing, community services, and other related matters. Moreover, although the government did not hire the employees, it was obligated to reimburse American Viscose for the salaries of certain employees under a lease between the DPC and American Viscose. Id. at 480-81.

After production began, the government placed a representative on-site with the authority to promulgate rules governing all operations at the site and to remove workers who were incompetent or guilty of misconduct. Through continuous informal contacts and communications, the government was involved directly and substantially with the facility's production activities and management decisions. Id. The government controlled the supply and price of American Viscose's raw materials as well as the production level and the price of its product. Therefore, inasmuch as the facility was doing only government mandated work, the government significantly influenced the profit that American Viscose could make at the facility. Id. at 483. Of course, the government was the end-user of almost all of the product manufactured at the facility, either because it purchased the product directly or because the product was sold to other industries for use in war materials.

The government knew that generation of hazardous waste inhered in the production process because its personnel present at the facility witnessed a large amount of highly visible waste disposal activity. Wastes were placed in large unlined basins located on site and, as basins were filled, new ones were dug. Portions of the sulfuric acid utilized in the production process that could not be reclaimed or treated at the facility were deposited in the on-site waste basins, as were carbon bisulfide and zinc contaminated wastes. From 1942 through 1945, at least 65,500 cubic yards of viscose waste were placed in the on-site basins. The disposal basins were visible to any person visiting the facility.

Inasmuch as the generation of waste was inherent in the production of high tenacity rayon, an increase in production automatically increased waste. This fact is significant because governmental pressure to maximize production overtaxed the machinery and equipment at the facility, thereby increasing the amount of material scrapped for disposal in the waste basins. Moreover, the government rejected material not adhering strictly to the production specifications, thereby further increasing the amount of waste. In addition, wastes were generated and disposed of by the government-owned equipment that was installed at the facility. Id. at 483-84.

The district court concluded that the government was an owner and operator of the facility and an arranger of waste disposal. It predicated these Conclusions on its factual findings, which can be summarized as follows:

(1) the government required American Viscose to stop making regular rayon and start producing high tenacity rayon;

(2) the government mandated the amount and specifications of the rayon produced and the selling price;

(3) the government owned the equipment used to make the high tenacity rayon and owned a plant used to make raw materials;

(4) the government supervised the production process through the enactment of specifications and the placement of on-site supervisors and inspectors; it supervised the workers; and it had the power to fire workers or seize the plant if its orders were not followed; and

(5) the government knew that generation of waste inhered in the production process; it was aware of the methods for disposal of the waste; and it provided the equipment for the waste disposal.

After making its factual findings and Conclusions of law, the district court ordered the case to trial to determine the allocation of liability between FMC and the government. However, FMC and the government settled the allocation issues, subject to the government's right to appeal the ruling holding it liable as an operator and arranger. Under the settlement, the government conceded its liability as an owner with respect to its property at the facility and accepted an allocation of 8% of the cleanup costs as owner. But if we uphold the government's liability as an operator and arranger, its total liability under the settlement agreement will be increased to 26% of the cleanup costs. The government asserts that if it is held liable on all three theories, it will be responsible for between $26,000,000 and ...

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