On May 4, 2009, the U.S. Supreme Court handed down an important decision under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), in the case of Burlington Northern and Santa Fe Railway Co. v. United States (Shell Oil Co.). The Court held that Shell Oil had no liability for soil and groundwater contamination cleanup costs under CERCLA as an "arranger" for "disposal" of hazardous substances merely by selling a pesticide to a user with knowledge that the user was a careless operator that caused spills and leaks during transfer and storage. In the second part of the opinion, the Supreme Court affirmed the District Court's judgment apportioning liability for 9% of the total cleanup costs to the several railroad companies that owned a portion of the property on which the user operated.
Brown & Bryant, Inc. ("B&B") operated an agricultural chemical distribution business on 3.8 acres in Arvin, California (the "Property"). In 1975, B&B expanded its operations onto an adjacent .9-acre parcel it leased from the Burlington Northern and Santa Fe Railway Co., and from Union Pacific Railroad Co. (the "Railroads"). B&B stored and distributed various chemicals in drums and other containers both inside its warehouse and outside, one of which was a pesticide called D-D, which it purchased from Shell Oil Co.
In the late 1970s, Shell, knowing that B&B (like its other distributors) occasionally spilled chemicals it was transporting, took several steps to encourage safe handling of its products, including inspection and certification requirements. Nonetheless, B&B remained a "sloppy operator," and over the course of 28 years, delivery spills, equipment failures, and rinsing of tanks and trucks allowed D-D and other chemicals to seep into the soil and groundwater. In 1983, the California Department of Toxic Substances Control ("DTSC") and the United States Environmental Protection Agency ("EPA") began investigating the Property.
In 1989, B&B became insolvent and ceased all operations. That same year, the Property was added to the National Priority List, authorizing government agencies to undertake cleanup efforts and seek reimbursement from potentially responsible parties. By 1998, the government agencies spent over $8 million to clean up the Property and the Railroads spent over $3 million on the cleanup. EPA and DTSC then brought a cost recovery action against the Railroads. The Railroads responded with a contribution action against B&B and Shell, and the two cases were consolidated.
The U.S. District Court for the Eastern District of California held that both the Railroads and Shell were potentially responsible parties ("PRPs") under CERCLA—the Railroads because they were owners of a portion of the facility, and Shell because it had "arranged for" the disposal of hazardous substances through its sale and delivery of D-D. Rather than imposing "joint and several" liability, however (meaning the entire amount of the liability could be borne by either or both of the parties), the District Court apportioned the Railroads' liability as 9% of the total cleanup costs, and Shell's liability as 6% of the total clean up costs. The Ninth Circuit Court of Appeals affirmed the Railroad's and Shell's strict liability as PRPs, but reversed the apportionment part of the judgment and held them both jointly and severally liable.
Shell Not Liable As "Arranger" Under 42 U.S.C. § 9607(a)
On appeal to the U.S. Supreme Court, the first issue was whether Shell Oil Co. was liable as an "arranger for disposal" under 42 U.S.C. § 9607(a), given the fact that Shell Oil had some knowledge that its product was being used in a way that led to contamination. The pertinent language in CERCLA imposes strict liability on "any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances...." 42 U.S.C. § 9607(a)(3).
The Court stated that liability should not attach beyond the limits of the statute itself, and interpreted the plain language of Section 9607(a)(3) to mean that an entity may qualify an as arranger "when it takes intentional steps to dispose of a hazardous substance." The Court rejected the government agencies' argument that Shell's continued participation in the delivery of products to B&B, with knowledge that spills and leaks would result, was sufficient to establish Shell's intent to dispose of hazardous substances. Instead it held that Shell had no liability at all.
District Court's 9% Liability Apportionment to Railroads Found Reasonable
The second issue addressed by the Supreme Court was whether the record provided a reasonable basis for the District Court's conclusion that the Railroads were liable for 9% of the harm caused by contamination on the Property. The District Court arrived at 9% by multiplying the proportionate surface area of the Railroads' portion of the Property (19%) by the proportionate time period B&B operated on the Railroads' portion of the Property (45%), then by the amount that chemicals present on the Railroads' portion contributed to overall site contamination (66%), and then multiplied again by 50% to account for calculation errors.
The Ninth Circuit reversed that ruling. It held that the District Court erred because the data relied on were not specific enough, and because the percentages of land area, time of ownership, and types of hazardous products were not reliable measures of the harm cause by activities on the Railroads' portion of the Property.
The Supreme Court disagreed. It approved an established line of lower court cases holding that CERLCA did not mandate joint and several liability in every case, and that, under common law principles, "apportionment is proper when there is a reasonable basis for determining the contribution of each cause to a single harm." The Court found the record "abundantly clear" that the primary pollution on the Property was contained in the southeastern portion most distant from the Railroads' parcel, and that the contamination from the Railroads' parcel contributed no more than 10% of total site contamination, some of which did not require any remediation at all.
What the Burlington Northern Case Means
This is an important decision for both manufacturers of hazardous substances and for government agencies seeking contributions and reimbursement for hazardous waste cleanups under CERCLA. The Supreme Court has limited the definition of "arrangers" to those potentially responsible parties which "take intentional steps to dispose of a hazardous substance." No longer will a party be deemed to have "arranged for" disposal merely because it provided the chemicals to a distributor that is known to be spill-prone. Thus, in many future cases, manufacturers' "deep pockets" will no longer be available to contribute to the remediation of contaminated sites where other PRPs are either insolvent or non-existent.
The opinion does not make new law with regard to the apportionment/joint and several liability issue, but it may send a message to the federal courts of appeal that district court determinations of what are reasonable bases for apportionment should be left alone, even if doing so effectively discharges the only private source for cleanup cost recovery.
As a result, governmental environmental agencies will have less PRP funds available to clean up contaminated sites, they will have less incentive to cleanup sites where significant cost recovery is doubtful, and consequentially, more and more contaminated sites may never get cleaned up at all.
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