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9th Circuit Holds that CERCLA Liability May Extend to Canadian Company for Pollution That Originated Beyond U.S. Borders

Beveridge & Diamond, P.C., July 6, 2006

The 9th Circuit released its opinion on July 3, 2006 in a closely watched case with potentially broad implications for the imposition of liability for transboundary environmental harm.  The decision, in Pakootas v. Teck Cominco Metals, affirms the lower court’s denial of a Canadian company’s motion to dismiss a CERCLA case on the ground that CERCLA does not apply extraterritorially.  The opinion may represent the first step in a move to extend CERCLA liability to cover pollution in the United States that originates from operations located outside the United States, such as in Mexico or Canada.  Click here to view a copy of the opinion.

Background

The case involves pollution released from a large lead-zinc smelter in Trail, British Columbia, owned and operated by Canadian zinc mining giant Teck Cominco Metals (TCM).  Ironically, this is the same smelter that was the subject of a well-known environmental dispute between the United States and Canada from the 1930s involving sulfur dioxide emissions that allegedly damaged orchards in Washington State.  Because the claims could not be brought at that time under either B.C. or Washington law, that earlier dispute was elevated to the diplomatic level and ultimately referred to an arbitral tribunal.  The resulting Trail Smelter decision held in 1941 that Canada was liable under state responsibility for injuries in Washington State caused by emissions from Canada.  The case has come to stand for the customary international law principle that a state must ensure that activities within its jurisdiction or control do not cause damage to the environment of other states.

The dispute at issue in Pakootas involves the smelter’s discharge into the Columbia River of hundreds of thousands of tons of slag containing arsenic, cadmium, copper, mercury, lead and zinc.  Although the discharge took place in Canada, the EPA determined that the slag traveled downstream and settled in slower flowing areas of the Upper Columbia River and Lake Roosevelt located in Washington State.  As the slag decays and releases heavy metals to the environment, EPA found, it causes significant and ongoing harm to human health and the environment, resulting in a severely contaminated site in the United States.

In 2003, EPA issued an order under CERCLA directing TCM to conduct a “remedial investigation/feasibility study.”  This order represented the first time that the United States has sought to apply CERCLA to pollution originating from activities outside the United States.  TCM rejected the order and asserted that EPA lacked authority to enforce CERCLA for pollution originating in Canada.  The order led to significant friction between the United States and Canada, as well as considerable consternation among the business communities on both sides of the border. 

EPA neither withdrew its order nor sought to enforce it.  Two members of an Indian tribe bordering the Upper Columbia river then filed suit to enforce the order under CERCLA’s citizen suit provision.  TCM moved to dismiss on the ground, inter alia, that the order involved an impermissible extraterritorial application of CERCLA.  The district court acknowledged the general presumption that, unless Congress expresses a contrary intent, U.S. statutes are meant to apply only within the territorial jurisdiction of the United States.  It nevertheless held that despite CERCLA’s domestic focus, CERCLA did apply extraterritorially because the remedial effect that Congress intended could not be achieved unless EPA’s order applied to TCM in Canada.

TCM appealed the case to the Ninth Circuit.  Business interests in Canada and the United States, including the U.S. Chamber of Commerce and the National Association of Manufacturing, filed amicus briefs warning of significant adverse effects if the decision were upheld.  These effects included the potential for retaliation by the Government of Canada by imposing liability against businesses located in the United States whenever their operations have environmental consequences felt in Canada.  They also included the potential disruption of foreign policy and international environmental schemes designed to deal cooperatively with transboundary pollution.

Ninth Circuit Decision

The Ninth Circuit panel unanimously affirmed the District Court’s denial of TCM’s motion to dismiss.  But the opinion rejected the lower court’s threshold presumption that the case involved an extraterritorial application of CERCLA.  The court first focused on the statutory elements of CERCLA and the specific terms of the EPA order at issue in the case:  it noted that the EPA order defined the CERCLA “facility” in this case as the site where the slag deposits were located (i.e., in and around Lake Roosevelt), and that leaching of heavy metals from the slag at the site constituted a “release” under CERCLA.  Because both the facility and the release were located entirely within the United States, the court held, neither of these elements of CERCLA liability involved the extraterritorial application of CERCLA. 

The court then rejected TCM’s argument that, because the act of disposal took place in Canada even though the hazardous substances eventually came to be located in the United States, it could not be held liable as a “covered person” under CERCLA without applying CERCLA extraterritorially.  The court observed that, unlike RCRA or other domestic environmental statutes that regulate activities such as waste disposal, CERCLA is concerned only with imposing liability for releases of hazardous substances.  In other words, CERCLA liability is triggered by an environmental release, not by the act of disposal; CERCLA is not concerned with the question of what rules govern the act of disposal (which in this case would be governed by Canadian law).  The court therefore concluded that “the location where a party ... disposed of hazardous substances is not controlling for purposes of assessing whether CERCLA is being applied extraterritorially.”  Applying CERCLA to the releases of hazardous substances in the circumstances of this case was therefore “a domestic, rather than an extraterritorial application of CERCLA, even though the original source of the hazardous substances is located in a foreign country.”

The Ninth Circuit’s theory may give cold comfort to those who worried about the unfettered extraterritorial application of CERCLA that was portended by the district court’s decision.  The court effectively sidesteps the question whether CERCLA applies extraterritorially.  To be sure, the result is theoretically narrower than the effects-based approach adopted by the District Court, since it would extend liability only to situations where extraterritorial activities have led to the creation of a “facility” in the United States and a “release” into the U.S. environment from that facility.  But the result still allows liability to attach to activities that take place outside the United States.  And it is not clear that the narrower theoretical framework will serve to limit a broader application of CERCLA’s scope in practice.  Given the breadth of the way that the term “release” has been interpreted in the Ninth Circuit, for example, EPA and others may seek to argue that almost any hazardous pollution that eventually deposits in the United States is the subject of a subsequent “release” into the U.S. environment through some chemical or physical transformation event.  As a result, many of the concerns that have been raised about the District Court’s decision are likely to apply to the Ninth Circuit’s reasoning as well.

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If you would like to discuss the implications of this case in greater detail, or wish to evaluate whether your operations with cross-border environmental impacts could give rise to claims under U.S. domestic law, you can reach Paul Hagen at (202) 789-6022 (phagen@bdlaw.com) or Russ LaMotte at (202) 789-6080 (rlamotte@bdlaw.com).

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