• Apportionment is here to Stay and Knowledge of Disposal is Simply Not Enough for Arranger Liability
  • May 22, 2009 | Authors: Greg A. Christianson; James J. Dragna; Tiffany R. Hedgpeth; Rick R. Rothman; Robert N. Steinwurtzel; Marilee J. Allan
  • Law Firms: Bingham McCutchen LLP - Los Angeles Office; Bingham McCutchen LLP - Washington Office; Bingham McCutchen LLP - San Francisco Office
  • On May 4, 2009, the United States Supreme Court issued its long-awaited decision in Burlington Northern & Santa Fe Railway Co, et al. v. United States, et al., 556 U.S. ___ (2009). This decision addresses two significant issues in the ever-evolving world of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). First, the Court ruled that parties that sell and deliver products to a site are not liable as “arrangers” under CERCLA, even if they knew that on-site spills of their products were likely to occur, unless they had an actual intent to dispose of the product. Second, the Court clarified that CERCLA liability, even to government regulators, is not necessarily joint and several but can be apportioned if the defendant proves that there is a “reasonable basis” for determining its contribution to the harm.

    Background

    In 1975, Brown and Bryant (“B&B”) expanded its agricultural chemical distribution operations in Arvin, California by leasing adjacent land from Burlington Northern and Santa Fe Railway Company and Union Pacific Railroad (“Railroads”). Shell Oil Company (“Shell”) sold the pesticide D-D to B&B, and arranged for it to be delivered, via a common carrier, to the B&B site. Given the method of delivery, it was necessary to transfer the product multiple times on the site, which sometimes resulted in spills, overflows, and leaks. Shell was aware of the propensity for leaks and offered certain incentives to B&B and other customers that took steps to limit the number of leaks and spills.

    In the 1980s, the California Department of Toxic Substances Control (“DTSC”) and U.S. Environmental Protection Agency (“EPA”) investigated the site, finding contamination in the groundwater and soil. B&B performed some initial work at the site. By 1989, however, B&B was insolvent, and DTSC and EPA took over the cleanup effort. By 1998, DTSC and EPA had spent more than $8 million at the site. In 1991, EPA issued an administrative order to the Railroads directing them, as owners of the site, to perform portions of the remedial work. The Railroads subsequently spent more than $3 million in the process.

    The District Court

    In 1992, the Railroads sued B&B in District Court in an attempt to recoup some of their costs. DTSC and EPA subsequently sued Shell and the Railroads, and all three lawsuits were consolidated in 1996. In 1999, the District Court entered judgment for DTSC and EPA, finding the Railroads liable as CERCLA “owners” and Shell liable as a CERCLA “arranger.” The District Court found that Shell was aware that minor, accidental spills occurred during the transfer process. While Shell took steps to address the spills, the District Court concluded that those efforts were not wholly successful.

    While government regulators are often awarded joint and several relief where multiple parties are found liable at a site, the District Court determined that in this case the harm was divisible, and capable of being apportioned. In establishing the Railroads’ share of liability, the District Court considered factors including the number of years that B&B operated on the Railroads’ property, the proportionate share of the property on which B&B operated, and the approximate volume of contaminants attributable to B&B’s operations, ultimately finding the Railroads liable for 9% of the response costs at the site. Based on estimates of the total number of leaks and spills of Shell’s product at the site, the District Court found Shell liable for 6% of the total costs.

    The Ninth Circuit

    The Railroads and Shell appealed. The Court of Appeals for the Ninth Circuit upheld the District Court’s ruling that Shell and the Railroads were liable under CERCLA. As for Shell’s arranger liability, the Ninth Circuit found that Shell had “arranged” for the sale and delivery of its product and that the resulting spills “were a foreseeable byproduct” of that sale. The Ninth Circuit also reviewed the definition of “disposal” under CERCLA, noting that the definition encompasses both “leaking” and “spilling.” The Ninth Circuit therefore reasoned that Shell had “arranged for disposal,” thereby triggering CERCLA liability.

    As for apportionment, the Ninth Circuit confirmed that divisible harm may be apportioned, but concluded that the factors relied on by the District Court did not provide a “reasonable basis” for apportionment. The Ninth Circuit therefore held that Shell and the Railroads were jointly and severally liable for the response costs incurred by EPA and DTSC. Shell and the Railroads moved for rehearing en banc which was denied.

    The U.S. Supreme Court

    This week, the Supreme Court reversed the Ninth Circuit’s decision as to both arranger liability and apportionment. The Court determined that the District Court did have a “reasonable basis” for apportioning Shell and the Railroads’ liability. The Court also determined that Shell was not liable as an arranger under CERCLA, noting that mere knowledge of disposal was insufficient to impose arranger liability.

    Regarding arranger liability, the Court noted that this determination requires a fact-intensive, case-specific inquiry that must go beyond the parties’ purported intentions and examine whether the conduct is such that Congress intended it to fall within the strict liability confines of CERCLA. In making this determination, the Court looked first to the plain language of the statute. Noting that to “arrange” implies action directed to a specific purpose, the Court concluded that mere knowledge of leaks or spills, by itself, does not justify a finding of arranger liability. While Shell had arranged to sell and deliver the product to the site, the Court noted that the product delivered to the site was a useful product. The Court therefore concluded Shell’s knowledge of spills does not mean that Shell “planned for” the disposal of hazardous waste, particularly since the leaks and spills constituted a “peripheral” result of the sale of a useful product. The Court also highlighted the steps that Shell took in an effort to limit the possible spills and leaks that might occur, noting that these steps constituted further evidence that Shell did not intend for its product to be disposed of. Thus, the Court reversed the Ninth Circuit’s finding of arranger liability for Shell.

    The Court then turned to the question of apportionment of the Railroads’ CERCLA liability. Citing a line of cases following the 1983 District Court decision in United States v. Chem-Dyne Corp., 572 F.Supp. 802, the Court noted that CERCLA’s strict liability standard does not necessarily mandate joint and several liability. Rather, the Court cited the Restatement (Second) of Torts in concluding that apportionment is appropriate when “there is a reasonable basis for determining the contribution of each cause to a single harm.” The Court then looked to the record to determine whether it provided a reasonable basis for the 9% apportionment to the Railroads. After summarizing the District Court’s calculations based on periods of time, percentage of acreage, and volume of contaminants, the Court found that the record contained sufficient information to support an apportionment. The Court further concluded that the District Court’s 9% apportionment of liability to the Railroads was reasonable based on the circumstances. Accordingly, the Court reversed the Ninth Circuit’s ruling holding the Railroads jointly and severally liable.

    Possible Implications of the Supreme Court’s Decision

    Both portions of the Court’s ruling could have far-reaching implications for pending and future CERCLA litigation.

    In reversing the Ninth Circuit’s ruling on arranger liability based on the sale and subsequent spills of a useful product, the Court closed the door on a potentially significant expansion of CERCLA liability for product manufacturers. Based on the Court’s opinion, a manufacturer’s mere knowledge of spills of a sold product, by itself, appears to be insufficient to impose arranger liability. Moving forward, plaintiffs seeking to pursue defendants under such circumstances will likely be required to prove an actual intent to dispose of the materials.

    The Court’s decision on apportionment may have even broader significance. While the Court’s ruling was based on a case-specific inquiry into the record, its willingness to accept the District Court’s apportionment confirms that the burden for parties to demonstrate divisibility of harm is not insurmountable. This ruling could have implications at numerous sites where government regulators and others are seeking to impose joint and several relief, making it easier for parties to show that the harm attributable to their actions is divisible from that attributed to others.