Management Chapter 15 American Widgets could promote higher international

Chapter Fifteen

Environmental Law

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

Exporting Environmental Compliance

Issues Presented: (a) What factors should a corporation take into account before relocating a

polluting factory to a nonregulating country? (b) What alternatives are there besides

relocation?

(a) As polluting industries come under increasing regulation in industrial nations, the

resulting trend is to export the polluting processes to nonregulating countries. So-called

“runaway shops” then market their products in industrial nations with the competitive

advantage of not having to comply with the pollution-control regulations.

In deciding whether to re-locate industrial factories to nonregulating countries,

companies must weigh several factors. The international trade impacts of pollution export

(b) Instead of relocating, American Widgets could promote higher international

regulatory standards for waste disposal or work with an international standard-setting

QUESTIONS AND CASE PROBLEMS

Question 1

Issues Presented: (a) Is recovery of costs under RCRA and other statutes possible when the

offending actions took place prior to the effective date of the statutes? (b) Are individuals

who act on behalf of a corporation individually liable for violations of RCRA and other

statutes? (c) Can suit be brought against a corporation that has been liquidated?

(a) The court in United States v. Northeastern Pharm. and Chem. Co., 810 F.2d 726 (8th Cir.

1986), gave RCRA and CERCLA retroactive effect. Therefore, parties engaging in activities that

(b) NEPACCO was held liable for its actions under RCRA and CERCLA. Additionally,

Lee was found individually responsible under RCRA and CERCLA because he personally

(c) Even though NEPACCO had been liquidated, the court found that the corporation

could still be sued because it has not been dissolved. Rather, NEPACCO has merely lost its

Question 2

Issues Presented: (a) Do environmental laws apply to nonprofit organizations? (b) What

should a purchaser of property do to avoid potential environmental liability associated with

the acquisition?

(a) Environmental laws apply to both profit and nonprofit organizations. To protect his

organization from potential liability, George Lu should establish comprehensive due diligence

(b) To protect the association from environmental law liability, Lu will want to shift the

risk of bearing the cost of any environmental harm to parties other than the association. Lu

Question 3

Issue Presented: Is an entity’s mere knowledge that its hazardous product would be spilled

and leaked by a subsequent user of that product sufficient to prove that the entity “arranged

for” the disposal under CERCLA?

CERCLA imposes liability for environmental contamination upon four classes of

potentially responsible parties (PRPs). Relevant to the case at hand, CERCLA imposes liability

upon

“(3) any person who by contract, agreement, or otherwise arranged for

disposal or treatment, or arranged with a transporter for transport for

Because CERCLA does not specifically define what it means to “arrang[e] for” disposal,

the Court gave the phrase its ordinary meaning. The ordinary meaning of the word “arrange,”

noted the Court, implies “action directed to a specific purpose.” Therefore, in order for Shell to

qualify as an arranger, it “must have entered into the sale of [the chemical] with the intention

that at least a portion of the product be disposed of during the transfer process by one or more

Question 4

Issue Presented: To what extent do secured lenders face CERCLA liability for the

environmental violations of their borrowers?

CERCLA holds the owner or operator of a facility containing hazardous waste strictly

liable for the expenses incurred in responding to the environmental and health hazards posed

by the waste in the facility. CERCLA contains exceptions to the broad liability for owners, one

The appeals court approved of the district court’s decision to draw a distinction between

the City of Florence’s decision to acquire the property to spur industrial development and its

decision to retain title to the property to ensure that the bonds were backed by adequate

security. The court stated:

[G]overnments acquire property to further some public purpose, be it economic

development, environmental protection, or flood control. Once those public

Question 5

Issues Presented: (a) How does the manager of a new company ensure compliance with

environmental laws? (b) To what extent do officers of a company face personal liability for

the pollution violations of that company? (c) How should a manager respond to

intracompany environmental violations?

(a) Environmental law is both complex and elaborate. As CEO of a new biotech

company, Gregg Entrepreneur will almost certainly be too involved in the operational aspects

of the enterprise to research personally all legal requirements for compliance. Environmental

(b) Federal environmental laws hold liable both owners and operators of hazardous

waste facilities. Corporate officers who are involved in the day-to-day operation of a facility

(c) Entrepreneur should obviously put an end to the violations and immediately fire the

production manager. In addition, he must revise the organization policies so that the VP of

operations exercises better oversight of the waste disposal practices. Entrepreneur is legally

Question 6

Issue Presented: Can a creditor that formerly owned 20% of the stock in a company that ran

and operated a mine be successfully sued as a responsible party under CERCLA?

This hypothetical is based on Raytheon Constructors, Inc. v. Asarco Inc., 368 F.3d 1214 (10th

Cir. 2003). In the actual case, Biller Company was Raytheon Constructors, Inc., formerly

The U.S. Supreme Court explained in Bestfoods that “an operator must manage, direct, or

conduct operations specifically related to pollution, that is, operations having to do with the

leakage or disposal of hazardous waste, or decisions about compliance with environmental

regulations.” The Supreme Court acknowledged that directors and officers might hold

The Tenth Circuit in Raytheon found that Stearns did indeed wear two hats as president

of Biller and as president and chair of RMI. But the appeals court concluded that the district

court erred in concluding that he was acting on behalf of Biller rather than RMI: “[S]erving as

the primary liaison between two corporations does not rebut the presumption of wearing

separate hats in separate corporate roles. . . . Indeed, none of these facts rebut the Bestfoods

Note that a suit against Stearns personally might result in his being found liable as an arranger

and operator.

Question 7

Issue Presented: Is a company a responsible party under CERCLA if another party spills

waste that, without the fault of the first firm, flows onto its property?

The court rejected NMPC’s theory that MVO was responsible because it owned or

operated a facility at the time the hazardous substances were disposed of by TAS, explaining:

The critical facts are that the trucks were cleaned and rinsed on the TAS

property, after which the contaminants flowed onto [MVO’s property] to the

With respect to the passage of the contaminants over or through MVO’s property, the U.S.

Court of Appeals for the Second Circuit concluded that it had not been established that

hazardous wastes were “disposed of” at MVO’s property within the meaning of the statute:

“Disposal” is defined as the “discharge, deposit, injection, dumping, spilling,

leaking, or placing.” It cannot be said that any of these things were done on

MVO’s property. What happened on MVO’s property in the relevant time was

The appellate court affirmed the lower court’s decision to dismiss NMPC’s CERCLA

contribution claim against MVO, because no disposal occurred on MVO’s land.

Question 8

Issue Presented: Does Mr. Villegas’s conduct amount to a “discharge” under the Clean Water

Act? Is he, a human being, a “point source” within the meaning of the act?

The Clean Water Act makes unlawful “the discharge of any pollutant by any person

. . . .” 33 U.S.C. Section 1311(a). “Pollutant” is defined, in part, as “biological materials . . .

discharged into water.” 33 U.S.C. Section 1362(6). “Discharge,” in turn, is “any addition of any

The issue before the court in U.S. v. Plaza Health Laboratories, Inc., 3 F.3d 643 (2nd Cir.

1993), was whether Mr. Villegas’s conduct constituted a “discharge” under the Clean Water Act.

To determine the scope of the Clean Water Act’s definition of “point source,” the court

first considered the language and structure of the act itself. The court explained:

Human beings are not among the enumerated items that may be a “point

source.” Although by its terms the definition of “point source” is

nonexclusive, the words used to define the term and the examples given

(“pipe, ditch, channel, tunnel, conduit, well, discrete fissure,” etc.) evoke

images of physical structures and instrumentalities that systematically act

as a means of conveying pollutants from an industrial source to navigable

waterways.

The court next observed that the legislative history of the act provided “little insight” to

the meaning of the term “point source,” but only confirmed the act’s focus on industrial

polluters. Similarly, case law urging a broad interpretation of the definition in the civil-penalty