Superfund Liability and Apportionment - Burlington Northern v. United States

Posted on January 20, 2009 by Theodore Garrett

Although the Superfund statute is now 28 years old, basic issues of liability and apportionment of liability remain unresolved. This term, the U.S. Supreme Court will decide a case with broad implications for CERCLA liability, Nos. 07-1601 and 07-1607, Burlington Northern v. United States. These consolidated cases, which will be argued early in 2009, raise important issues concerning the circumstances under liability is divisible and the scope of “arranger” liability under CERCLA.  If the Ninth Circuit’s approach is upheld, the heightened evidentiary standards may impose a difficult hurdle on parties to prove reasonable apportionment of liability. The Ninth Circuit’s approach to “arranger” liability is of concern to entities that sell chemicals or other products in the ordinary course of business. The allocation of risk and provisions for insurance and best practices to avoid spills in contracts between suppliers and common carriers may need to be reviewed in light of the Supreme Court’s opinion in this case. 

 

Although the Superfund statute is now 28 years old, basic issues of liability and apportionment of liability remain unresolved. This term, the U.S. Supreme Court will decide a case with broad implications for CERCLA liability, Nos. 07-1601 and 07-1607, Burlington Northern v. United States. These consolidated cases, which will be argued early in 2009, raise important issues concerning the circumstances under liability is divisible and the scope of “arranger” liability under CERCLA.  If the Ninth Circuit’s approach is upheld, the heightened evidentiary standards may impose a difficult hurdle on parties to prove reasonable apportionment of liability. The Ninth Circuit’s approach to “arranger” liability is of concern to entities that sell chemicals or other products in the ordinary course of business. The allocation of risk and provisions for insurance and best practices to avoid spills in contracts between suppliers and common carriers may need to be reviewed in light of the Supreme Court’s opinion in this case. 

 

                                    Background

A now-defunct company, Brown & Bryant, Inc. (B&B), owned and operated a facility at which chemicals were stored and distributed. The B&B operations were conducted in part on land owned by two railroad companies. Some of the chemicals used by B&B were supplied and delivered by Shell Oil Company. The U.S. Environmental Protection Agency (EPA) and the State of California’s Department of Toxic Substances Control (DTSC) brought suit under CERCLA to recover their response costs.

 

In 1996, the EPA and the State filed CERCLA actions against B&B, the Railroads, and Shell for reimbursement of their investigation and cleanup costs.   The district court, after a twenty-seven day bench trial, issued a detailed, 191-page decision holding the Railroads liable under CERCLA § 9607(a) as owners of the facility and as persons who “at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of.”  Shell was held liable under CERCLA § 9607(a)(3)as a “person who ... arranged for disposal ... of hazardous substances.”  

 

The district court found that the harm to the site was capable of apportionment.  The parties had not provided arguments concerning apportionment, leaving the district court to independently perform the equitable apportionment analysis. For the Railroads, the district court multiplied three proportions: (1) the percentage of the overall site that was owned by the Railroads, 19.1%; (2) the percentage of time that the Railroads leased the parcel in relation to B&B’s total operations, 45%; and (3) the fraction of hazardous products attributable to the Railroad parcel, 66%. This calculation resulted in a determination of 6% liability.  To account for any “calculation errors,” the district court assumed 50% error and raised the Railroads’ proportion of the total liability to 9%. For Shell, the district court approximated the volume of spills of Shell’s product attributable to Shell, and set Shell’s proportion of the total liability at 6%. 

 

The State and EPA appealed the district court’s judgment.  Shell cross-appealed the finding that it was liable as an “arranger” under CERCLA. The federal district court held the Railroads and Shell liable for a minor portion of the total cleanup costs. The agencies appealed. A panel of the Ninth Circuit affirmed the portion of the judgment that imposed liability on Shell as an arranger and reversed the portion of the judgment that declined to impose joint and several liability on the Railroads and Shell. 

 

The Supreme Court granted certiorari. The questions presented are whether the 9th Circuit correctly (1) affirmed the district court’s ruling that Shell is liable as an arranger and (2) reversed the district court’s apportionment of liability. The case is scheduled to be argued early in 2009.

 

                                    The Ninth Circuit’s Decision

 

A panel of the Ninth Circuit affirmed the portion of the judgment that imposed liability on Shell as an arranger and reversed the portion of the judgment that declined to impose joint and several liability on the Railroads and Shell, holding that petitioners did not satisfy their burden of proof on apportionment. United States v. Burlington Northern & Santa Fe Railway, 502 F.3d 781 (9th Cir. 2007), as amended 520 F.3d 918 (9th Cir. 2008). The amended opinion was issued to accompany a denial of en banc review, which prompted an unusual dissent by eight Ninth Circuit judges including the Chief Judge.

 

Apportionment of Liability. The Ninth Circuit notes that § 433A(1) of the Restatement allows for apportionment of damages where “(a) there are distinct harms or (b) there is a reasonable basis for determining the contribution of each cause to a single harm.” 520 F.3d at 934-35.  

On the facts presented, the court found no dispute on the first, purely legal question -- whether the harm is capable of apportionment, but held that the district court erred in finding that there was a “reasonable basis” apportioning the harm based on percentages of land area, time of ownership, and types of hazardous products.  The Ninth Circuit held that there was no evidence linking these factors to the proportion of leakage, contamination, or cleanup costs. 520 F.3d at 945-46. With respect to Shell, the Ninth Circuit similarly found that the evidence relied on by the district court was too speculative to determine the amount of leakage of Shell’s chemicals.  520 F.3d at 946-47.

 

“Arranger” Liability. The Ninth Circuit rejected Shell’s arguments that the district court applied the wrong legal standard in determining whether Shell was an “arranger.”  The Ninth Circuit held that the useful product cases do not apply in this case because “Shell arranged for delivery of the substances to the site by its subcontractors; was aware of, and to some degree dictated, the transfer arrangements; knew that some leakage was likely in the transfer process….” 520 F.3d at 950. The Ninth Circuit cited evidence that spills occurred every time the deliveries were made; that Shell arranged for delivery and chose the common carrier that transported its product to the site; that Shell changed its delivery process so as to require the use of large storage tanks, that Shell reduced the purchase price of the chemicals to reflect loss from leakage; and that Shell distributed a manual and created a checklist to ensure that the chemical tanks were operated in accordance with Shell’s safety instructions. 520 F.3d at 950-51.

 

The Dissent. The order denying the petition for rehearing en banc provoked a strong dissent by Judge Bea, joined in by seven judges including the Chief Judge. The dissent cites the detailed factual findings made by the district court and states: “If this evidence does not provide a ‘reasonable estimate’ for apportionment of liability, I do not see how -- short of ‘perfect information’ sufficient to trace every molecule of pollution to the landlord’s parcel -- apportionment could ever be possible under CERCLA.”  520 F.3d 953. The dissent was equally critical of the panel’s imposition of “arranger” liability on Shell, stating: “The panel’s imposition of arranger liability on a mere seller, which relinquished control over its products upon delivery and before spillage occurred, goes far beyond the statutory language and creates inter-and intra-circuit splits.” 520 F.3d 954.

 

Issues Before The Supreme Court

1. Apportionment of Liability.  Petitioner Burlington Northern argues that the Ninth Circuit’s analysis of apportionment departs from common-law principles, which allow for rough apportionment based on reasonable assumptions. The Ninth Circuit has pushed the “polluter pays” principle in CERCLA beyond all rational limits. Burlington argues that imposing joint and several liability in all but extraordinary cases, as the Ninth Circuit’s reasoning would dictate, would raise a multitude of constitutional problems, citing Eastern Enterprises v. Apfel, 524 U.S. 498 (1998).

 

The United States counters petitioners failed to even attempt to identify and prove a reasonable basis for apportionment and the Supreme Court should not relieve petitioners of the consequences of their litigation strategy. Further, the United States argues that a district court does not have the same “broad discretion” in determining whether and how liability should be apportioned. 

 

2. “Arranger” Liability.  Shell Oil Company argues that “arranger” liability may not be imposed on a manufacturer who merely sells and ships, by common carrier, a commercially useful product, transferring ownership and control to a purchaser who causes contamination involving that product.  Any inadvertent spillage that occurred was the result of the transfer of a useful product, thus Shell cannot be said to have arranged for the discard of waste. Shell did not own the chemicals at the time of any disposal. Shell also argues that a company should not be penalized for providing its customers with a safety manual and other information for the safe handling of its products.

 

The United States argues that Shell is liable because it entered into transactions that it knew would directly result in disposals of hazardous substances. The government’s brief emphasizes that Shell inserted itself over the transfer process by hiring the common carriers used for delivery and because the common carriers used equipment required by Shell. Lack of intent to dispose of a hazardous substance does not preclude arranger liability, the United States argues, where the arranger has advance knowledge of the disposal. 

 

                                    Conclusion

In cases where there is a significant orphan share, the failure to apportion liability may result in the imposition of liability for the entire cleanup cost on parties with minimal responsibility.  If the Ninth Circuit’s approach is upheld, the heightened evidentiary standards may impose a difficult hurdle on parties to prove reasonable apportionment. Alternatively, the Supreme Court might decide the issue on narrow grounds suggested by the United States, namely that petitioners failed to offer evidence concerning apportionment and thus did not meet their burden of proof.

The Ninth Circuit’s approach to “arranger” liability is of concern to entities that sell chemicals or other products in the ordinary course of business. Does every sale and delivery of a useful product potentially subject the supplier to CERCLA liability if leakage or spills occur? If not, how does one draw the line?  Should arranger liability attach only when the sole purpose of a transaction is for disposing a hazardous substance?  The allocation of risk and provisions for insurance and best practices to avoid spills in contracts between suppliers and common carriers may need to be reviewed in light of the Supreme Court’s opinion in this case. 

 

Theodore Garrett is a partner in the law firm Covington & Burling LLP in Washington, D.C. and is Co-Chair of the firm's environmental practice group. His practice involves major regulatory and enforcement issues and transactions, particularly involving air quality, water quality, hazardous waste, and natural resource damages. He has been lead industry counsel in numerous cases seeking judicial review of EPA air and water regulations and has represented clients in numerous Superfund matters. Mr. Garrett advises clients on compliance and related business issues and has been extensively involved in administrative proceedings and litigation, including Supreme Court cases. Mr. Garrett has spoken and written widely in the environmental area. He is the editor and principal author of The Environmental Law Manual and the RCRA Compliance Manual, and is a contributing author to Environmental Litigation and The Clean Water Act Handbook. Mr. Garrett served as a U.S. Supreme Court law clerk to Chief Justice Warren Burger.  He is past Chair of the ABA Section of Environment, Energy and Resources. Mr. Garrett was honored as the Environmental Lawyer of the Year 2008 by Who’s Who International.

 

Contact Information: tgarrett@cov.com or (202) 662-5398



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