Breaking Ground(water): RICO Ruling Reshapes PFAS Litigation

Yet another new horizon looms for PFAS litigation. Numerous PFAS claims, like those involving deceptive trade practices due to PFAS in food packaging, seldom withstand a motion to dismiss, but the emergence of a novel liability theory could expose corporations to PFAS litigation of a different sort.

On December 21, 2023, in Ryan, et al. v. Greif, Inc., et al., Judge Guzman at the U.S. District Court for the District of Massachusetts ruled plaintiffs were allowed to advance their PFAS contamination claims under the Racketeer Influenced and Corrupt Organizations (RICO) Act. (No. 22-CV-40089-MRG, 2023 WL 8828220 (D. Mass. Dec. 21, 2023).) In Ryan, et al., the well water, ground water and soil in the Westminster, Mass., region harbored PFAS concentrations that “significantly surpassed” the benchmarks set by the Massachusetts Department of Environmental Protection. The three corporate defendants—who are involved in the production of paper, fertilizer and various other products—are alleged to be the source of the contamination. Upon de novo review, the Court adopted the lower court’s report and recommendations regarding the RICO claims against Seaman Paper Company of Massachusetts, Inc., Otter Farm, Inc., and Massachusetts Natural Fertilizer Company, Inc., (MassNatural). (Plaintiff’s RICO claims against Defendants Greif, Inc., Caraustar Industries, Inc., and the Newark Group, Inc., were dismissed because they were deemed to not cross the plausibility threshold.) In denying the Motion to Dismiss, the Court held that the RICO statute provides a civil cause of action to those harmed by the activities alleged in the complaint (18 U.S.C. § 1964(c)). Specifically, the complaint alleged that Seaman Paper operated a paper mill since the 1940s and has a history of using PFAS in the production of its paper products. In 2002, Seaman Paper acquired a plot of land, incorporated Otter Farm Inc., and conveyed the acquired land to Otter Farm Inc. Otter Farm then leased this land to MassNatural to use as a composting facility. MassNatural composts various materials, including paper fiber, and sells its compost, usually in the form of soil products, to the public. MassNatural has allegedly accepted waste material from Seaman Paper without testing it and fabricated its own compliance procedures to state authorities.

According to the complaint, the alleged RICO enterprise took the form of an arrangement that allowed Seaman Paper a site to dump contaminated byproducts from its paper mill and avoid paying for expensive hazardous waste transporters or for proper disposal. Otter Farm, by providing a 100-year lease at below-market rent, had the leverage to ensure that MassNatural would cooperate in receiving and handling Seaman’s contaminated byproducts and concealing violations of environmental regulations. Most notably, the complaint alleged that Seaman Paper’s “close and long-standing relationship” with Otter Farm and MassNatural were sufficient to raise a “plausible inference” of the shared purpose of managing Seaman Paper’s disposal costs and avoiding regulatory oversight.

This ruling, in PFAS context, is being called the first of its kind and could serve as a bellwether decision that will broaden the potential theories of liability brought against corporate defendants. Moreover, a decision like this should prompt companies to reassess their existing oversight over the receipt of hazardous materials. Companies that might not have been aware of their involvement in PFAS contamination could now face unforeseen liability.

Furthermore, companies should exercise heightened caution considering the EPA has released new PFAS reporting requirements. In particular, the EPA has eliminated the de minimis exemption that previously allowed facilities to avoid reporting if PFAS chemicals were used in small concentrations, i.e., less than 1% (0.1% for carcinogens). As a result, much broader chemical reporting obligations will apply to companies that manufacture, process, or use listed PFAS (including those who manufacture PFAS substances or mixtures as suppliers).

According to the EPA, “[t]he rule also makes the de minimis exemption unavailable for purposes of supplier notification requirements to downstream facilities for all chemicals on the list of chemicals of special concern, which also includes certain persistent, bioaccumulative and toxic chemicals like lead, mercury, and dioxins.” Numerous PFAS substances are found in products, especially in minimal concentrations. Companies with links to PFAS will need to evaluate those potential associations. Individuals acquiring mixtures or trade name products will also need to seek disclosure from suppliers regarding all listed PFAS substances and their concentrations or will need to implement testing themselves. In addition to the heightened reporting requirements, the NDAA automatically added nine additional PFAS to the Toxics Release Inventory (TRI) list for 2023 reports due by July 1. For 2024 reporting, seven additional PFAS were added to the TRI list. Potentially affected industries have been listed by the EPA.

In sum, possible liability claims under RICO compounded with the new reporting requirements could create additional risk and exposure to PFAS litigation. Companies should evaluate their due diligence processes in order to remain compliant with EPA standards and shield themselves from potential liability.