The United States Supreme Court has agreed to review a decision by a panel of the United States Court of Appeals for the Ninth Circuit which, while recognizing the concept of apportioning liability among PRPs under CERCLA, adopts a test which is almost impossible to satisfy. The panel’s opinion also imposes “arranger” liability on the seller of hazardous substances which are leaked into the environment prior to use. Burlington Northern & Santa Fe Ry. Co. v. United States, (revised op. at 520 F.3d 918 (9th Cir. 2008).
The CERCLA site at issue was an agricultural chemical storage and distribution facility in California operated by Brown & Bryant, Inc. (“B&B”) beginning in 1960. In 1975, B&B began leasing an adjacent parcel of land from two railroad companies. From its facility, B&B sold products produced by various manufacturers including two soil fumigants produced by Shell Oil Company. Shell delivered these fumigants to B&B “F.O.B. Destination” via common carrier trucks where the contents were transferred to B&B storage tanks. The transfer process frequently resulted in spills.
Eventually, the USEPA and the California Department of Toxic Substances Control (“DTSC”) began to remedy the contamination on the B&B site pursuant to clean-up authority under CERCLA. In 1991, the EPA ordered the railroads to take specific preventative steps on the railroad parcel. However, none of the contamination requiring immediate remediation was on the railroad property. In 1996, EPA and DTSC filed actions against B&B, the railroads and Shell for reimbursement of their investigation and clean-up costs.
The district court held the railroads liable as owners of the facility at the time of the disposal. 42 U.S.C. § 9607(a)(1), (2). Shell was held liable as a “person who arranged for disposal . . . of hazardous substances”. 42. U.S.C. § 9607(a)(3) The district court went on to apportion the railroads’ liability based on the percentage of the overall site they owned, the portion of time that the railroads leased the parcel to B&B and the fraction of hazardous products attributable to the railroads’ parcel. The calculation was then increased by 50 percent to arrive at a total liability of nine percent. The district court approximated the percentage of leakage from various activities attributable to Shell and multiplied them together to arrive at a six percent share of liability for Shell. B&B was assigned 100 percent joint and several liability despite being insolvent. EPA and DTSC appealed the court’s apportionment arguing that the railroads’ and Shell’s liability was joint and several. Shell cross-appealed the district court’s holding that it was liable as “an arranger”.
On the issue of apportionment, the panel recognized that CERCLA is silent as to whether the liability imposed on PRPs is joint and several or may be apportioned. The court determined that it would follow the general principle that liability is joint and several when the harm is indivisible and, following the lead of other circuit courts, apportionment is available for divisible harms at the CERCLA liability stage. After extensive discussion on the Restatement (Second) of Torts treatment apportioned liability, the panel determined that there was a two-part test for apportionment. The first part of the test is a question of law: whether the particular harm at issue is theoretically capable of apportionment. The second is a factual question: whether there is sufficient evidence to establish a reasonable basis for apportionment of liability. The first test requires a de novo review of the lower court decision. The second test is a review under the clear error rule. According to the panel, the first test was satisfied because the railroads leased the adjacent parcel to B&B for only part of the time that B&B’s operations were occurring and only part of the toxic substances were stored on the railroads’ parcel.
However, the panel was not persuaded by the district court’s apportionment formula mentioned above was adequately supported by the evidence. Despite the fact that the Restatement and other decisions appear to support using factors like those relied on by the district court as a reasonable basis for apportionment, that the panel imposed a test which appears to require “adequate records detailing the amount of leakage attributable and the activities on the railroad parcel, how that leakage traveled to and contaminated the soil and groundwater under the facility and the cost of cleaning up that contamination”. In effect, the panel imposes a test which would be almost impossible to meet. The panel justified this result based on “CERCLA’s expansive statutory liabilities”. However, the panel was not asked to determine whether the railroads were liable, but whether liability could be apportioned – an issue not addressed by CERCLA.
As the question of Shell’s liability as an arranger, the panel cited a number of factors which caused it to conclude that Shell was an arranger such as: Shell chose the common carrier, Shell required the use of large storage tanks by B&B, Shell provided a rebate for improvements of B&B’s storage tanks, Shell would reduce the purchase price in an amount that the district court concluded was linked to loss from leakage and Shell distributed a manual to ensure B&B’s tanks were operated in accordance with Shell’s safety instructions. However, the panel did not explain how these factors demonstrated that Shell had control over the process that created the waste a factor the Ninth Circuit had previously held constituted a crucial element of arranger liability in U.S. v. Shell Oil Co., 294 F.2d 1045 (9th Cir. 2002).
This article was authored by James R. Snyder, Jackson Kelly PLLC. For more information on the author see here.