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The U.S. Supreme Court Sets Limits on Environmental Superfund Liability

On May 4, 2009 the United States Supreme Court issued its third Superfund decision in five years: Burlington Northern v. United States, — S.Ct. — (2009). The Court continues the “plain language” focus it began in 2005 with Cooper Industries, Inc. v. Aviall Services, Inc., 125 S.Ct. 577 (2005), and rejects the Ninth Circuit’s attempt to expand CERCLA “arranger” liability to reach Shell Oil Company, a supplier/seller of an unused, useful pesticide product which ultimately contaminated a distribution site via known spills and leaks on the part of the distributor. This opinion also provides the Court’s first pronouncement on when and how the harm at a Superfund site is divisible and not to be imposed on a joint and several, 100 percent basis. The Court reinstates a district court’s determination that two railroads, who owned only part of the distribution site for a portion of the site’s operational life, would be liable for 9 percent of the site’s cleanup costs instead of the joint and several liability (100 percent of the costs) imposed by the Ninth Circuit.

The Burlington Northern decision may become key support for at least two propositions in future actions to determine liability and allocation issues under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), 42 U.S.C. §9601 et seq. 1) “Unintentional” arranger for disposal liability claims just became harder to prove, and sellers of virgin, useful products now may be removed from the Superfund arena altogether. 2) Owner and operators of complex, multi-parcel sites now have much stronger apportionment and allocation arguments based on the actual area of ownership and time of operation of the facility (geographic and temporal divisibility).

BACKGROUND

In 1960, Brown & Bryant (B&B, now defunct) began distributing pesticides from a facility in Arvin, California. B&B owned one 3.8 acre parcel of the site outright, but in 1975, expanded onto a .9 acre adjacent parcel owned by two railroads – corporate predecessors to Burlington Northern and Union Pacific (the Railroads). Shell Chemical Company (Shell) sold a virgin, useful product, D-D, to B&B under FOB delivery terms – Shell owned the product until B&B accepted delivery at the Arvin facility. Shell’s trucks (hired common carriers) transferred the product to on-site storage tanks for most of the site’s operational history. Shell issued transport, delivery and storage instructions to its customers. D-D was not the only pesticide handled at the site. B&B operated at the site for a total of 28 years.

By 1989, B&B was insolvent, the site was contaminated, and the U.S. Environmental Protection Agency (EPA) had added the site to the National Priorities List (NPL) of the nation’s most hazardous disposal locations. EPA and the State of California began cleanup work at the site, and looked for potentially responsible parties (PRPs) to reimburse what ultimately became $8 million in cleanup costs. EPA found the Railroads and directed them to perform part of the site cleanup work. The Railroads complied, and spent an additional $3 million for response costs. The Railroads, in turn, looked for other PRPs to pay a portion of the site costs and found Shell.

The Railroads filed a lawsuit against Shell for contribution towards their cleanup costs. EPA and California also sought cost recovery from Shell and the Railroads. Eventually, the district court consolidated three cases concerning the Arvin facility, and went to trial for six weeks on the liability and apportionment claims. The district court determined that the Railroads and Shell were liable parties, but that the harm at the site was divisible. It found the railroads liable for 9 percent of the harm, and Shell 6 percent. The state of California and EPA were left with more than 80 percent of their response costs unpaid.

The Ninth Circuit affirmed the district court’s liability findings against Shell and the Railroad, but then reversed the divisibility apportionment and found them all jointly and severally liable for 100 percent of the EPA and California cleanup costs, holding that although the site harm theoretically was capable of apportionment, the parties had not met their burden of proof concerning actual divisibility.

THE SUPREME COURT DECISION

The Supreme Court (with Justice Ginsberg dissenting) reversed the Ninth Circuit’s rulings on both PRP status for Shell (holding that Shell is not a PRP), and the joint and several liability finding against the Railroads (reinstating the 9 percent share given to them by the district court based on geographical and temporal divisibility).

On the issue of Shell’s liability, the Court concluded that Shell is not an arranger for disposal under CERCLA based solely on its bulk sales and delivery of pesticide to its distributor/customer B&B, when it was B&B who mishandled and spilled the pesticide at the site. In so ruling, the Court continued on the “plain language” crusade it began in Cooper Industries v. Aviall regarding CERCLA’s terms:

To determine whether Shell may be held liable as an arranger, we begin with the language of the statute. As relevant here, §9607(a)(3) applies to an entity that “arrange[s] for disposal . . . of hazardous substances.” It is plain from the language of the statute that CERCLA liability would attach under §9607(a)(3) if an entity were to enter into a transaction for the sole purpose of discarding a used and no longer useful hazardous substance. It is similarly clear that an entity could not be held liable as an arranger merely for selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination. See Freeman v. Glaxo Wellcome, Inc., 189 F. 3d 160, 164 (CA2 1999); Florida Power & Light Co. v. Allis Chalmers Corp., 893 F. 2d 1313, 1318 (CA11 1990). Less clear is the liability attaching to the many permutations of “arrangements” that fall between these two extremes – cases in which the seller has some knowledge of the buyers’ planned disposal or whose motives for the “sale” of a hazardous substance are less than clear. In such cases, courts have concluded that the determination whether an entity is an arranger requires a fact-intensive inquiry that looks beyond the parties’ characterization of the transaction as a “disposal” or a “sale” and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability provisions. [Citations omitted.]

Although we agree that the question whether §9607(a)(3) liability attaches is fact intensive and case specific, such liability may not extend beyond the limits of the statute itself. Because CERCLA does not specifically define what it means to “arrang[e] for” disposal of a hazardous substance, see, e.g., United States v. Cello-Foil Prods., Inc., 100 F.3d 1227, 1231 (CA6 1996); Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 751 (CA7 1993); Florida Power & Light Co., 893 F.2d, at 1317, we give the phrase its ordinary meaning [citations omitted]. In common parlance, the word “arrange” implies action directed to a specific purpose. See Merriam-Webster’s Collegiate Dictionary 64 (10th ed. 1993) (defining “arrange” as “to make preparations for: plan[;] . . . to bring about an agreement or understanding concerning”); see also Amcast Indus. Corp., 2 F.3d, at 751 (words “‘arranged for’ . . . imply intentional action”). Consequently, under the plain language of the statute, an entity may qualify as an arranger under §9607(a)(3) when it takes intentional steps to dispose of a hazardous substance.

Slip op. at 10 – 11.

The Court then concluded that although Shell knew about spills and leaks of product at the distribution site, Shell did not intend for such leaking or spilling to occur and therefore was not responsible under CERCLA as an arranger for disposal.

While it is true that in some instances an entity’s knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity’s intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity “planned for” the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product. In order to qualify as an arranger, Shell must have entered into the sale of D-D with the intention that at least a portion of the product be disposed of during the transfer process by one or more of the methods described in [the Resource Conservation and Recovery Act] §6903(3). Here, the facts found by the District Court do not support such a conclusion.

Although the evidence adduced at trial showed that Shell was aware that minor, accidental spills occurred during the transfer of D-D from the common carrier to B&B’s bulk storage tanks after the product had arrived at the Arvin facility and had come under B&B’s stewardship, the evidence does not support an inference that Shell intended such spills to occur. To the contrary, the evidence revealed that Shell took numerous steps to encourage its distributors to reduce the likelihood of such spills, providing them with detailed safety manuals, requiring them to maintain adequate storage facilities, and providing discounts for those that took safety precautions. Although Shell’s efforts were less than wholly successful, given these facts, Shell’s mere knowledge that spills and leaks continued to occur is insufficient grounds for concluding that Shell “arranged for” the disposal of D-D within the meaning of §9607(a)(3). Accordingly, we conclude that Shell was not liable as an arranger for the contamination that occurred at B&B’s Arvin facility.

Slip op. at 12 – 13.

As for the two Railroads, each of which was a past and current owner of the .9 acre, leased portion of the distribution site, the Court agreed with both the district and circuit courts and found that the Railroads are liable parties under CERCLA.

The Court went on, however, to rely on what it characterized as the “seminal” case of U.S. v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Ohio, 1983) and the Restatement (Second) of Torts, §433A, as the “universal starting point” concerning the standard of proof for divisibility of harm and apportionment. Slip op. at 13. The Court concluded that the harm at the site was capable of apportionment under these standards, and the Railroads’ share of response costs at the site was limited to the 9 percent imposed by the district court.

Neither the parties nor the lower courts dispute the principles that govern apportionment in CERCLA cases, and both the District Court and Court of Appeals agreed that the harm created by the contamination of the Arvin site, although singular, was theoretically capable of apportionment. The question then is whether the record provided a reasonable basis for the District Court’s conclusion that the Railroads were liable for only 9 percent of the harm caused by contamination at the Arvin facility.. . .

[W]e conclude that the facts contained in the record reasonably supported the apportionment of liability. . . . [W]e are persuaded that it was reasonable for the court to use the size of the leased parcel and the duration of the lease as the starting point for its analysis. Although the Court of Appeals faulted the District Court for relying on the “simplest of considerations: percentages of land area, time of ownership, and types of hazardous products,” 520 F. 3d, at 943, these were the same factors the [appeals] court had earlier acknowledged were relevant to the apportionment analysis. [Quotation omitted.]

Slip op. at 15 – 17.

The Supreme Court accepted the district court’s analysis of geographic and temporal divisibility, but rejected the district court’s evidentiary basis for a contaminant-specific discount it had applied to the Railroads’ apportionment analysis. The Court also corrected the district court’s use of principles of equity in the apportionment calculations, holding that equity is only a factor for contribution analysis and has no place in cost recovery liability apportionment.

Nevertheless, the Court concluded that the district court had reached the correct apportionment result, albeit via the wrong route, because an apportionment calculation relying only on the “amount of time the Railroad parcel was in use and the percentage of the facility located on that parcel,” would have produced the same 9 percent liability apportionment. Id. at 18.

CONCLUSIONS

As noted above, the Burlington Northern decision may operate to remove virgin product suppliers from the Superfund net in most circumstances. It also may make more defenses available to parties who own only part of a Superfund site, enabling them to escape CERCLA joint and several responsibility. Finally, the decision reiterates, yet again, that courts, and therefore presumably regulators such as EPA and the states, must look to the actual words Congress used in the Superfund statute before attempting to impose liability on PRPs or to apportion cleanup costs.

If you have questions about rights or defenses regarding contaminated properties, please contact any member of the Spencer Fane Britt & Browne Environmental Practice Group or ask the Spencer Fane attorney you work with to put you in contact with one of the Group members.