A recent case out of the Southern District of New York highlights, once again, the expansive reach of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) also known as Superfund.
In APL Co. LTD v. Kemira Water Solutions, Inc. et al (February 25, 2014), the Federal Court held that a company who ordered water treatment chemicals from a Taiwanese company was liable for the five million dollar clean up that was required when the chemicals leaked during its trans-Pacific crossing aboard two cargo ships, even though the company never owned and never possessed the material at any time.
Defendant Kemira sold water treatment chemicals to various industrial and municipal water operators in the United States. One of those chemicals, ferrous chloride, becomes highly corrosive when exposed to moisture. Kemira purchased ferrous chloride from Fairyland, a Taiwanese chemical supplier. Fairyland contracted with APL, a global transportation and logistics company, to transport the shipment of the ferrous chloride.
Kemira purchased the goods as “DDP” or “delivery duty-paid” by Fairyland to Kemira’s plant in Fontana, CA. As such,Fairyland retained the contractual liability for the goods until they were delivered to Kemira’s plant. The parties’ agreement required that Fairyland use bulk bags that were impermeable to water and that the bulk bags “be shipped in such a manner to assure that all material arrives at destination with sacks intact and without material leakage.” With the foregoing in place, Kemira appeared to have protected itself adequately against problems arising during shipping.
The ferrous chloride was transported on two separate container ships. During the journey, the chemicals were exposed to moisture and leaked out of the bags and shipping containers. A five month clean-up effort ensued totaling approximately $5.0 million dollars. Shortly after the leaks were discovered, Fairlyand disappeared, leaving APL, the shipping and logistics company, to front the costs of the cleanup. APL paid for the cleanup and subsequently sought contribution from Kemira under CERCLA.
To establish liability under CERCLA, APL had to prove that Kemira was a “responsible party” by establishing that Kemira was an “owner or operator” of the leaking bags of ferrous chloride. Based on the contract documents it was clear that Kemira was not an owner of the bags until they were delivered to its facility. Nevertheless, APL argued, and the Court agreed, that Kemira became an operator when it included language in the contract dictating to Fairyland that the ferrous chloride “was to be packaged and that its instructions related specifically to leakage.” Kemira, therefore became joint and severally liable for the total cost of the cleanup under CERCLA.
The APL case demonstrates, once again, the expansive reach of environmental laws and regulations such as CERCLA. By including language in a contract requiring that the seller appropriately ship the purchased materials Kemira found itself on the hook for part of a $5 million dollar clean up despite never having handled or owned the material. The case serves as a reminder to always be careful with entities from whom you are purchasing materials, particularly when they may be hazardous. It should also serve as a reminder to review your contract language to make sure you are not inadvertently exposing your company to additional environmental risks.