Recyclers beware: You are exempt only if you can prove it

Serious recyclers should prepare a confidential audit of their operations and a “watch list” of potential sites for which there may be liability

The United States Environmental Protection Agency (USEPA) recently included the Chemetco site in Hartford, Ill., on the National Priorities List (NPL). NPL Sites are those facilities where USEPA has concluded that one or more hazardous substances has been released (or there is a substantial threat of a future release), that will cause someone to incur response costs under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). Superfund Sites are not uncommon, but here, USEPA is seeking to impose cleanup liability on parties who were under the impression that they were exempt recyclers.

While Chemetco had described its operations as a secondary copper smelter and recycler involved in the production of copper anodes and cathodes, the Agency describes Chemetco’s process as accepting various metals for secondary smelting, and in the process, generating huge piles of waste slag effectively disposed at the Hartford, Ill., site. After a checkered environmental compliance history, and specifically after the discovery of untreated waste being unlawfully discharged, the Chemetco operators ceased all processing activities at the site in 2001 and sought bankruptcy protection. According to the Agency, the site contains 837,000 tons of slag, 35,000 tons of zinc oxide waste, 70,000 tons of refractory brick — all with high concentrations of Lead (Pb), Cadmium, Copper and Dioxin.

The cleanup remedy is going to be expensive.

USEPA recently delivered Special Notices of Liability to parties who were very unpleasantly surprised to learn of their potential liability — especially to the extent they were under the impression that their recycling activities were exempt from CERCLA liability.

Indeed, pursuant to CERCLA Section 127, “recycled material” that was delivered to a site pursuant to a “recycling transaction” is exempt from liability. Before CERCLA Section 127, courts interpreted “arranger” liability fairly broadly and held that the sale of a used but valuable product, such as scrap and recyclable material, is an arrangement for disposal for which there is statutory environmental cleanup liability. Now, CERCLA provides that “recyclable material” (scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal, and spent lead-acid, nickel-cadmium, and other spent batteries) may not be attached to CERCLA cleanup liability so long as the person seeking the exemption demonstrates, by a preponderance of the evidence, that the following conditions existed at the time of the transaction:

  • The recyclable material met a commercial specification grade;
  • A market existed for the material;
  • A substantial portion of the recyclable material was made available for use as feedstock for the manufacture of a new saleable product;
  • The recyclable material, or the product made from it, could have been a replacement for a virgin raw material; and
  • For transactions occurring after Feb. 27, 2000, the person exercised “reasonable care” to determine that the recycling facility was in compliance with applicable law.

In addition, persons sending scrap metal to a facility must demonstrate compliance with regulations promulgated under the Solid Waste Disposal Act. Finally, the recycling exemption only applies if the person did not melt the scrap metal prior to sending it to the recycling facility.

CERCLA Section 127(f) excludes from the exemption persons with “an objectively reasonable basis to believe at the time of the transaction” that:

  • The material would not be recycled;
  • The material would be burned for fuel or incineration; or
  • For transactions occurring before Feb. 27, 2000, that the recycling facility was not in compliance with substantive (as opposed to procedural or administrative) provisions of applicable environmental regulations.

The recycling exclusion also does not apply if the person seeking the exclusion had “reason to believe” that hazardous substances had been added to the recyclable material for purposes other than processing or recycling.

CERCLA Section 127(i) applies retroactively, except that the recycling exemptions “shall not affect any concluded judicial or administrative action or any pending judicial action initiated by the United States prior to enactment.” CERLCA Section 127 does not apply to “owners” or “operators,” but only to parties that “arranged for disposal” of material sent to a site for recycling. Finally, the amendment protects recyclers from lawsuits by providing that if a person qualifies for the exemption, then he may recover attorney’s fees and expert witness fees for defending a CERCLA contribution action.

Despite the Exemption, recyclers may find it difficult to qualify — not because the materials involved were not “recyclable materials,” but because of the difficulty in proving that the transactions were “recycling transactions.” Moreover, given the reported poor environmental compliance status of the Chemetco site, otherwise exempt entities may find that the Agency challenges their purported exemption, and seeks reimbursement of the responses costs based solely on the sins of the site, and not of the recycler.

At this point, if a recycler has any potential exposure at this or any similar site for allegedly “arranging for disposal” of a hazardous substance, it is critical not to ignore the situation, but to make an affirmative claim — supported by a record — of its exempt status. That is, adequately describe the “recyclable material” and the “recyclable transaction” in an appropriate response to the Agency. Many recyclers revised their operations and contracts to refer to the Exemption when it was passed in 1999. Even if not, the materials and transactions may still qualify for the exemption. Do not waive it, and make a proper record.

Next, this issue is not going away for recyclers. Recycling is a remarkably useful and responsible activity that should not suffer from the unintended consequences imposed by Exemption. In other words, if a recycler’s documents or procedures need to be revised to show compliance with the Exemption — do it now. 

Finally, recyclers must anticipate CERCLA cleanup liability more and more. Indeed, recyclers are at the epicenter of waste disposal and potential cleanup liability by the nature of their business. Serious recyclers should prepare a confidential audit of their operations and a “watch list” of potential sites for which there may be liability. That audit should include a detailed description of the compliance history of the sites where the otherwise “recyclable material” has been delivered as part of a “recycling transaction.”

If the experience at Chemetco shows anything, the Agency will seek to impose cleanup liability on recyclers, otherwise handling proper materials as part of an exempt transaction, based solely on the sins of the operator of the site.

Hardly seems like much of an Exemption. Be prepared to respond.

Contributing Author

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William J. Anaya

Bill Anaya is an environmental Lawyer licensed in Illinois and Indiana and heads Arnstein &...

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