The Superfund Recycling Equity Act of 1999

Richard J. Brickwedde and Sarah M. Hurley

The Superfund Recycling Equity Act of 1999 (the Act) allows for the exemption of certain recyclable materials from Superfund liability, and contains particular statutory criteria that must be satisfied in order to qualify for the exemption. The Act, incorporated into CERCLA at 42 U.S.C. § 9627, exempts generators and transporters "who arranged for recycling of recyclable material" from incurring liability under CERCLA sections 107(a)(3) and 107(a)(4) for covered transactions.

The stated purposes of the Act are:

1. to promote the reuse and recycling of scrap material in furtherance of the goals of waste minimization and natural resource conservation while protecting human health and the environment;
2. to create greater equity in the statutory treatment of recycled versus virgin materials; and
3. to remove the disincentives and impediments to recycling created as an unintended consequence of the 1980 Superfund liability provisions.

In order to receive this exemption, the material in question must first be deemed to be a "recyclable material," defined in the Act as:

scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal, or spent lead-acid, spent nickel-cadmium, and other spent batteries, as well as minor amounts of material incident to or adhering to the scrap material as a result of its normal and customary use prior to becoming scrap.

The Act defines scrap metal as:

bits and pieces of metal parts (e.g., bars, turnings, rods, sheets, wire) or metal pieces that may be combined together with bolts or soldering (e.g., radiators, scrap automobiles, railroad box cars), which when worn or superfluous can be recycled, except for scrap metals that the Administrator excludes from this definition by regulation.

Once it has been determined that the material being recycled is included within the Act’s definition of recyclable material, the PRP must have "arranged for recycling" of the material. Sections 127(c) and 127(d) of CERCLA describe what constitutes "arranging for recycling" and sets forth several criteria that must be met in order to benefit from the liability exclusion. These criteria require a demonstration by a preponderance of the evidence that the material comes within the statutory exemption.

The recycler must demonstrate that:

• The "material met a commercial specification grade."
• At the time of the transaction a "market existed for the recyclable material."
• At the time of the transaction, a "substantial portion of the recyclable material was made available for use as feedstock for the manufacture of a new saleable product." This requirement is to eliminate those transactions in which only small or minor amounts of the recycled material are used to produce a new product. This requires consideration of the value of the recycled component compared to other components and its percentage by weight or volume in the recyclable material.
• The "recyclable material could have been a replacement or substitute for a virgin raw material, or the product to be made from the recyclable material could have been a replacement or substitute for a product made, in whole or in part, from a virgin raw material."
• Where a transaction occurred 90 days or more after the date of enactment, the recycler must exercise reasonable care to determine that the receiving facility is in compliance with the substantive provisions of applicable Federal, State, or local environmental laws or regulations. This includes determining status of compliance with any order or decree applicable to the handling, processing, or reclamation, storage, or other management activities associated with recyclable material.
• At the time of the transaction, it was in compliance with any applicable regulations or standards regarding the storage, transport, management, or other activities associated with the recycling of scrap metal.
• It did not melt the scrap metal prior to the transaction. However, "melting of scrap metal" does not include the thermal separation of 2 or more materials due to differences in their melting points (referred to as "sweating").

"Reasonable care" can be established by several statutory criteria. These include the price paid for recycling, the ability of the PRP to detect the nature of the facility operations with respect to the management of its recyclable materials, and the result of inquiries made to Federal, State, or local environmental agencies regarding the facility’s past and current compliance with substantive provisions of environmental laws. This is intended to encourage persons to take affirmative actions to determine that the recyclable materials go to legitimate recycling facilities operating in compliance with environmental laws, and not to sham recyclers. It requires persons seeking application of the exemption to determine whether there are environmental laws applicable to the facility’s recycling operations and about the facility’s compliance with those laws.

Even if the recycler meets all of the criteria set forth in the Act, it still may be susceptible to the statutory exclusions under Section 127(f), which deny protection from liability where the recycler:

Had an objectively reasonable basis to believe at the time of the recycling transaction… that the recyclable material would not be recycled… (or) would be burned as fuel, or for energy recovery or incineration, or…(for) transactions occurring before 90 days after the date of the enactment of this section, that the consuming facility was not in compliance with a substantive (not procedural or administrative) provision of any Federal, State, or local environmental law or regulation, or compliance order or decree issued pursuant thereto, applicable to the handling, processing, reclamation, or other management activities associated with the recyclable material.

The statute also denies an exemption from CERCLA liability when the recycler:

Had reason to believe that hazardous substances had been added to the recyclable material for purposes other than processing for recycling; or… failed to exercise reasonable care with respect to the management and handling of the recyclable material (including adhering to customary industry practices current at the time of the recycling transactions designed to minimize, through source control, contamination of the recyclable material by hazardous substances).

One issue with this amendment to CERCLA is the EPA response to its enactment. There seems to be a difference among Regions in applying this provision to existing cases not otherwise exempt. There are a limited number of cases addressing specific aspects of the amendment (see case notes infra) and therefore it is impossible to provide clients with any certainty regarding the application of this amendment.

Where a party is determined to be exempt by EPA pursuant to this provision, there is some measure of protection against contribution suits by third parties. If a party brings a contribution action under CERCLA and loses because of the application of the scrap exemption, that person will be liable for the cost of defending the action including all reasonable attorney’s fees and expert witness fees.

Although the Superfund Recycling Act of 1999 presents numerous issues not yet addressed by EPA or the courts, especially relating to past transactions, it does provide a basis for protecting future transactions. Counsel should carefully review the amendment and work with clients to develop procedures for proceeding in compliance with its requirements.

Solid Waste Report would like to hear from practitioners regarding experiences with the application of the amendment. We are especially interested in its application in cases of past scrap transactions.

Dick Brickwedde is a partner with Green & Seifter in Syracuse, New York and SCSW Vice Chair for Membership. Sarah Hurley is a recent graduate of Pace University School of Law in White Plains, New York and will join the Stamford, Connecticut office of Robinson & Cole in the fall.