New Headaches for Environmental Risk Managers

Jun 01 1998

On Friday, June 19, the Wisconsin Supreme Court issued a decision with far-reaching implications for companies already struggling to cope with liabilities associated with past waste disposal practices. In State of Wisconsin v. Chrysler Outboard Corporation, the Supreme Court ruled that any generator of hazardous wastes can be held liable for statutory penalties under Wisconsin’s Spills Law for each day the generator failed to take steps to remedy any contamination resulting from that disposal. That liability can arise regardless of whether the wastes were disposed properly or improperly, and regardless of the generator’s knowledge (or lack of knowledge) of any environmental harm resulting from the disposal.

As discussed in this Law Bulletin, the Supreme Court’s decision will affect the manner in which environmental managers assess risks form previous waste disposal decisions. An understanding of this decision is also required of those who make decisions regarding the purchase, or financing of a purchase, of businesses that carry such potential environmental liabilities.

Factual Background

The case arose out of Chrysler’s disposal of waste paints, oils and solvents form its outboard engine plant in Hartford, Wisconsin. In 1970, Chrysler contracted with a hauler to dispose of at least 400 drums of waste. The company that hauled the waste from Chrysler disposed of the drums at a site in Hartland, Wisconsin on property owned by the company’s president. Neither the hauler nor the disposal site was properly licensed under DNR regulations in effect at the time. The DNR discovered the waste in 1992. Thereafter, Chrysler removed the buried drums, remediated contaminated soil and obtained site closure from the DNR for that work. Unresolved, however, was the one-half mile long plume of groundwater contamination extending from the site.

The state of Wisconsin filed an action against Chrysler, seeking an injunction that would require Chrysler to remedy the groundwater contamination. The state also sought penalties under the Wisconsin Solid Waste Law (relating to the use of an unlicensed landfill) and under the Spills Law (for failing to restore the groundwater).

The Supreme Court’s Decision

The Court held that the state’s claim under both statutes were subject to a ten-year statute of limitations, such that the claims for alleged violations of the Solid Waste Law were brought too late. The Court rejected the state’s argument that the ten-year limitations period should not start to run until the state discovered the violation, holding instead that the ten-year period commenced on the date of the violation. As a result, the Solid Waste Law claims were dismissed.

The Court concluded that the claims under the Spills Law were not time-barred, however. The Spills Law requires persons who have “possession of or control over a hazardous substance being discharged” (typically, the property owner), as well as persons “who cause a hazardous discharge,” to “take the actions necessary to restore the environment . . .” Since Chrysler did not own the property, the key issue was whether Chrysler “caused” the discharge. Chrysler argued that it did not cause the discharge, but rather the hauler did. Chrysler argued further that even if it its act of delivering the waste to its hauler could be deemed to have caused the discharge, that the act took place more than ten years prior to the commencement of the action, such that the claim was barred by the statute of limitations.

The Supreme Court disagreed. According to the Court, “a person can cause that leaking by failing to clean up the hazardous waste it has generated.” Under that interpretation, Chrysler “caused” a discharge each day that if failed to take steps to stop the discharge, even though it was unaware that a discharge was occurring. Each day of that continuing failure constituted a separate violation of the Spills Law, for which Chrysler could be fined up to $5,000. The state was permitted to impose such daily penalties for the ten-year period leading up to the lawsuit.

The Supreme Court was sharply divided on the imposition of these statutory penalties, resulting in a 4-3 vote. Justice Geske wrote a highly critical dissent to that aspect of the majority opinion and was joined in that dissent by Justices Abrahamson and Bradley.

Chrysler faces several consequences as a result of this ruling. In addition to clearing the way for statutory penalties, the Supreme Court ordered Chrysler to complete remediation of the site. The Court also ordered Chrysler to “conduct an investigation to determine the location of any and all other unlicensed sites in Wisconsin at which its solid and hazardous wastes from its Hartford, Wisconsin plant were disposed and to submit both the results of that investigation, and if necessary, a remediation plan, to the DNR.” This requirement seemingly is at odds with the Court's clear statement elsewhere in the opinion that its ruling on the Spills Law was not based on Chrysler's use of an unlicensed landfill.

Practical Implications

The fact that Chrysler must remediate contamination resulting from its past disposal practices may come as no surprise to those familiar with the retroactive liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) or the Resource Conservation and Recovery Act (“RCRA”). What is alarming, however, is the Court’s holding that Chrysler could also be subject to penalties of up to $5,000 per day for failing to take remedial action even though that disposal predated the enactment of the Spills Law by eight years, and regardless of Chrysler’s lack of knowledge of either (1) the improper disposal of the wastes by its hauler, or (2) the contamination resulting form that disposal.

Companies that have generated hazardous wastes in the past must already contend with the potential that they may, someday, be required to participate in the cleanup of any site at which those wastes were disposed. The Chrysler decision does not change that potential obligation. What has changed is the spectra of financial penalties that may be imposed for failure to commence such a cleanup, even if the companies have no knowledge or reason to know of contamination relating to such disposal practices.

The logical result of this ruling is that a generator of hazardous wastes is automatically in violation of the Spills Law, and therefore, automatically subject to penalties whenever any of its hazardous wastes have contributed to contamination of soil or groundwater. The Court softened this impact by identifying certain factors that the trial court should consider in assessing penalties against Chrysler. These factors include Chrysler’s cooperation with the DNR; the fact that it had initiated the removal of buried drums and remediation of contaminated soil without being compelled to do so by the DNR; the environmental harm caused; and the degree of Chrysler’s culpability, which presumably would take into account its lack of knowledge regarding the improper disposal of the wastes and regarding the contamination resulting from that disposal. The DNR and the Wisconsin Department of Justice also may decide, in their discretion, not to pursue statutory penalties whatsoever. In any situation where remediation of past contamination is required, though, the Chrysler decision gives the state a significant stick that it may use to encourage “voluntary” cooperation on site remediation.

One strategy for limiting the potential liabilities associated with past waste disposal practices is to conduct an audit of haulers and disposal sites utilized by the company. Such an approach carries its own risks, however, including disclosure requirements and the potential cleanup obligations that may result. After Chrysler, companies may also elect to take a more aggressive stance with current haulers and disposal sites on issues such as indemnification and site standards. The advisability of these strategies can only be determined following a review of specific environmental practices and procedures.

The Chrysler decision is also significant in its potential applicability to commercial purchase and sale transactions. The agreements in such transactions typically include representations regarding compliance with applicable environmental laws and regulations. In the wake of Chrysler, a company may currently be in violation of the Spills Law if any of its wastes disposed anywhere in the state have caused or are causing contamination of soil or groundwater – regardless of the company’s lack of knowledge of such contamination. The Chrysler decision may make it difficult, if not impossible, for a company to represent that it currently is in compliance with the Wisconsin
Spills Law.

The application of the Chrysler opinion to any individual company or transaction depends upon a thorough analysis of the specific circumstances of that situation. The attorneys of von Briesen & Roper, s.c. would be pleased to address any questions that you may have arising out of this decision.

von Briesen Legal Update is a periodic publication of von Briesen & Roper, s.c. It is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.