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Supreme Court Decision Narrows the Definition of an Arranger in CERCLA Litigation and Encourages Apportionment of CERCLA Cleanup Costs by Property Owners Instead of Complete Joint and Several Liability

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) appellate decisions are often complex and difficult to read tomes, filled with multiple United States Code sections and acronyms. On May 4, 2009, the United States Supreme Court waded into CERCLA and issued an opinion that is surprisingly easy to read, and in a court that is often divided 5-4, featured an 8-1 majority, with even Justice Ginsburg’s lone dissent acknowledging that the question before the Court was a close one. The decision in Burlington Northern & Santa Fe Ry. v. United States, 2009 U.S. LEXIS 3306 (U.S. May 4, 2009), is a business-friendly decision that also thoroughly repudiates the current view of the Ninth Circuit on Section 107(a)(3) of CERCLA, 42 U.S.C.S. § 9607(a)(3).
The facts in Burlington Northern are typical of many CERCLA cases. For approximately 28 years, Brown & Bryant, Inc. (B&B) operated an agricultural chemical distribution business at a site in California, from which it applied pesticides to customers’ farms. Its site included a small parcel of land that it leased from two railroads, Burlington Northern and Union Pacific. Among the chemicals that B&B stored and distributed from its site were pesticides D-D and Nemagon, which it purchased from Shell. During B&B’s operation, leaks and spills of chemicals, especially D-D, occurred, and chemicals seeped into the ground water. After B&B closed its business because it became insolvent, the United States EPA and the California Department of Toxic Substances Control (DTSC) undertook cleanup efforts at the site, at a cost of over $8 million.
The EPA and DTSC then brought companion actions in the United States District Court for the Eastern District of California, seeking to have the railroads, as the owners of the leased parcel, and Shell Oil, as an arranger under § 9607(a)(3), held liable for the cleanup costs as potentially responsible parties (PRPs). The district court declined to impose joint and several liability on the defendants for the entire cost of the cleanup. Instead, the district court imposed liability of 9% on the railroads and 6% on Shell. The Ninth Circuit reversed, holding that the railroads and Shell were jointly and severally liable for the entire cleanup cost expended by the EPA and DTSC.
In urging affirmance by the Supreme Court, the EPA and DTSC argued that Shell was liable as an arranger of the disposal of hazardous substances under § 9607(a)(3). They asserted that Shell was responsible because it had required B&B to switch from purchasing its chemicals in 55-gallon drums, which were more secure, to purchases that were delivered to bulk storage tanks, which increased the risk of spills and leaks. Justice Ginsburg stated in her dissent that Shell had required B&B to accept bulk tank truckloads of D-D, instead of 55-gallon drums, because it was “economically advantageous” to Shell.
The Court declined to accept such an expansive definition of arranger. Writing for the majority, Justice Stevens adopted the “ordinary meaning” or “common parlance” of the term arrange and held that “an entity may qualify as an arranger under § 9607(a)(3) when it takes intentional steps to dispose of a hazardous substance.” The Court held that minor, accidental spills of hazardous materials did not constitute the arranging of disposal of the material. “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.”
The Court next rejected the Ninth’s Circuit determination that the railroads were jointly and severally liable for the entire cleanup costs on the site because those costs were not capable of apportionment. The district court had conducted an extensive trial before it crafted its apportionment formula that found the railroads liable for only 9% of the cleanup costs. The Court found that the district court’s allocation of the cleanup costs was supported by the evidence and complied with the principle that “apportionment is proper when there is a reasonable basis for determining the contribution of each cause to a single harm."
Justice Ginsburg asserted in her dissent that Shell was liable as an arranger because of the degree of control that it exercised in how the chemicals were delivered to and stored by B&B. She stated that finding that Shell had no liability for the spills and leaks of the products on B&B’s site was “surely at odds with CERCLA's objective -- to place the cost of remediation on persons whose activities contributed to the contamination rather than on the taxpaying public.” As to the determination of the apportionment of costs to the railroads, Justice Ginsburg found that “the District Court undertook an heroic labor.” Her only concern on this point was that the EPA and DTSC may not have received a fair opportunity in the district court to respond to the district court’s apportionment theories. Thus, she would have returned the litigation to the district court for additional arguments on whether joint and several liability was appropriate.
Business interests had been very vocal in their opposition to what was seen by some as an expansion of CERCLA liability by the Ninth Circuit. Charles Moellenberg of Jones Day, who authored an amicus brief for the Products Liability Advisory Council in favor of cert by the Supreme Court, had asserted that the Ninth Circuit had expanded the common law and Superfund while allowing the government to overreach in search of deep pockets. Fred Hiestand of the Civil Justice Association of California, which also filed an amicus brief in the Supreme Court, claimed that the Ninth’s Circuit decision would cause companies to charge high prices for hazardous materials or stop selling those products.
Whether the views of business interests were correct or not, it is clear that the Supreme Court has narrowed the CERCLA liability of property owners and suppliers of hazardous materials. Bradley Marten of the Marten Law Group, a regular contributor to this Environmental Law & Climate Change Center, states that there will be fewer PRPs and arrangers for governments to pursue, and property owners may incur greater liability because of the reduced possibility that arrangers will be liable for cleanup costs. He foresees the decision causing increased lower court litigation and a possible push for reinstatement of the expired Superfund tax. Daniel Steinway of Baker and Botts, who wrote an amicus brief for the National Association of Manufacturers, says that the Supreme Court’s decision will have enormous financial consequences for industry and help industry avoid onerous joint and several liability when apportionment can reasonably be calculated.
The transcript of the oral arguments before the United States Supreme Court in Burlington Northern is available here.