Burping Transformers and CERCLA Liability

The Sixth Circuit Court of Appeals recently held that the General Electric Company (GE) was not liable for the costs associated with PCB contamination caused by a release of PCBs from transformers that were intentionally designed to “burp” to relieve pressure and release PCBs as vapor and liquid. American Premier Underwriters v. General Electric Company, __ F.4th __, No. 20-4010, 2021 WL 4272652 (6th Cir. 2021). American Premier Underwriters (APU) brought an action under CERCLA seeking to recover millions of dollars in remediation costs it had spent to remediate PCB contamination at former Penn Central railyards now owned by APU.

The Court held that GE was not an “arranger” for disposal of PCBs as it did not intend to dispose of PCBs in the sale of the transformers to Penn Central despite knowing that “burping” of the transformers could lead to a release of PCBs. This decision is consistent with cases out of the Fourth Circuit (no liability for sale of used transformers containing PCBs), and Fifth and Ninth Circuits (both Courts finding manufacturers of dry cleaning equipment containing perchloroetheylene not liable as arrangers) but can be contrasted with a finding of liability out of the 8th Circuit (arranger liability for sale of a building contaminated with PCBs) and the First Circuit (arranger liability for the sale of Pyranol oil). One common thread in all of these cases is a focus on the intent of the defendant in selling the products alleged to cause the contamination.

The story starts in the late 1920s/early 1930s when GE developed self-propelled passenger railcars. Transformers located on the bottom of the rail car were used to step down high-voltage current from overhead electric cables and convert to power to propel the railcars. This conversion process generated significant heat and thus a coolant was necessary to allow the transformers and railcars to function properly. GE began using Pyranol (aka PCBs) in the 1940s as the premier coolant for the job. However, at times, as components heated up, the coolant would expand and increase tank pressure until, at some point, the pressure would need to be relieved to avoid an explosion. To address this risk, GE include a pressure relief valve on the transformer that allowed the operator to “burp” the transformer and release Pyranol vapor, and sometimes liquid, from the transformer. Pyranol could also leak from seals, mounts, gaskets and seals if not properly contained, causing increased risk when stored in railyards.

Penn Central purchased the passenger railcars from GE in the 1970s. As the self-propelled passenger railcars constituted complicated and expensive equipment, GE had a representative at the railyard during the five-year warranty period to help trouble shoot and advise on potential repairs. Although GE could recommend certain repairs or actions, GE had no authority to perform the repairs itself and employees could disregard GE’s advice. In addition, by the 1970s, GE understood that PCBs posed certain risks and that the railcars could release PCBs through burping or otherwise. GE informed Penn Central of these risks and that the transformers and railcars should be managed with care to prevent a release.

It should come as no surprise that PCBs leaked from transformers in the railyards. APU spent millions of dollars remediating the PCB contamination and filed an action again GE under CERCLA. APU claimed that GE was a CERCLA arranger and/or operator at the facility and thus responsible for a share of cleanup costs. In affirming the District Court, the Sixth Circuit did not agree and found that GE was not liable as a CERCLA liable party.

Arranger Liability. APU argued that GE “arranged for disposal” of PCBs because GE designed and manufactured transformers with pressure-release valves that were designed to release Pyranol under certain conditions and that GE knew that the transformers were likely to have spills of Pyranol over time. AFU also pointed out the recommendations provided by GE to direct spills onto the roadbed and GE’s unwillingness to recall transformers after it was shown that the transformers could leak. The Court did not find any of this information sufficient to find GE liable as an “arranger.”

CERCLA imposes strict liability on “[a]ny person who by contract, agreement, or otherwise arranged for disposal . . . of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances.” 42 U.S.C. § 9607(a)(3). The Court noted that “arrange” is not defined under CERCLA, but following the reasoning of the Supreme Court’s decision in Burlington Northern, the Court noted that “arrange” implies some intention to dispose of hazardous substances and state of mind is critical. The Court found it significant that the “’specific purpose’ of selling transformers with release valves wasn’t to get rid of an undesirable waste product—it was to release pressure and avoid tank rupture. The Court noted that although environmental contamination was “foreseeable,” it was not the “goal.” The fact that GE knew that Pyranol could be released did not impact the Court’s decision.. The Court also highlighted that the coolant was a “useful” product and essential to the operation of the railcars and that the transformers were designed to minimize coolant loss. The Court found that all of these factors persuade the Court that GE is not responsible as an arranger under CERCLA.

Operator Liability. APU posited that GE should be held liable as a CERCLA operator as GE assigned employees to the railyards to train, direct and oversee maintenance of the transformer and railcars it designed and manufactured. APU also claimed that, per the warranty, GE has the ability to decide how, when and if repairs are made and the fact that GE elected not to recall the transformers but rather just authorize repairs once identified, showed that GE maintained post-sale control.

CERCLA imposes strict liability on “any person who . . . operated any facility” at the time of disposal of the hazardous substances. 42 U.S.C. § 9607(a)(2). The Court found the GE would not be held liable as an “operator” under CERCLA, relying on another Supreme Court case – Bestfoods. The Court in Bestfoods found that an “operator” is someone who has “actual control” over the working or management of a facility and such operation must have to do with “affirmative actions” regarding the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations. The Sixth Circuit thus held that as GE had no “actual control” over the railyards, railcars, or transformers at the polluted sites, GE was not a CERCLA operator. The Court noted that GE’s activities at railyards served to fulfill GE’s contractual warranty obligations and such activities did not serve as a means to controlling the railyards or the railcars and transformers at the railyards.

This case demonstrates that the ability to hold manufacturers liable under CERCLA for equipment that contains and eventually releases hazardous substances is difficult and fact intensive and the state of mind of the manufacturers is key. Here, GE intended to sell transformers – it did not intend to dispose of PCBs. The fact that GE eventually knew that PCBs could be released from the transformers did not impact the Court’s evaluation of GE’s intention.