Energy and Environment MonitorFinally the U.S. Supreme Court has issued a definitive opinion (8-1, Burlington Northern & Santa Fe Railway co. et al. v. United States et al. (No. 07–1601, May 4, 2009), limiting CERCLA liability in two major aspects:
1. Joint and several liability is not applicable if there is reasonable evidence supporting apportionment.
2. When a company has sold a product, the company’s mere knowledge of incidental spills and leaks is insufficient grounds for concluding that it is liable for “arranging for” disposal.
The basic background facts were that commencing in 1960, Brown & Bryant, Inc.(B&B), an insolvent company at the time of the CERCLA action, operated an agricultural distribution facility initially on one parcel of land in California and later expanded its operations onto an adjacent parcel owned by Burlington Northern and Union Pacific Railroads (“the Railroads”). Shell sold a pesticide to B& B which it then distributed. There was evidence of minor, routine spillage when the pesticide was transferred from the common carrier to B & B tanks and routine spills and leaks of the pesticide as B & B handled it for ultimate distribution. In 1991, EPA issued an administrative order to the Railroads directing them, as owners of a portion of the property which was leased by B & B, to perform certain remedial tasks in connection with the site. The Railroads did so, incurring expenses of more than $3 million. Since B & B was insolvent, the balance of the contaminated B & B property was cleaned up by EPA and California at a cost of approximately $8 million. EPA and California then sued the railroads and Shell pursuant to CERCLA §107 for recovery of $8 million in clean-up costs.
The government argued that the Railroads were jointly and severally liable for the entire amount of the $8 million in response costs unless they could prove that the harm from the release of hazardous substances is divisible and that divisibility had not been proven. The EPA acknowledged that the legislative history of CERCLA indicated that joint and several liability was to be governed by the principles in the Restatement of Torts (2nd). Under the Restatement, damages for a single harm can be apportioned among multiple causes only if “there is a reasonable basis for determining the contribution of each cause to a single harm.” Restatement§ 433A(1)(b). When two or more liable parties bring about a single harm, and one or more of them seeks to limit its liability on the basis that the harm is capable of apportionment, the burden of proof as to the apportionment is on such party. Restatement §433B(2). That burden includes both the burden of production (i.e., of presenting evidence sufficient to establish its share of the harm) and the burden of persuasion (i.e., of demonstrating by a preponderance of the evidence that apportionment is warranted). Restatement §433B. The EPA argued that the Restatement specifically identifies the insolvency of a co-defendant as a factor weighing against apportionment providing, even if a defendant carries its burden on apportionment, the defendant may still be held jointly and severally liable if the circumstances are exceptional, as when “one of two tortfeasors is so hopelessly insolvent that the plaintiff will never be able to collect from him the share of the damages allocated to him.” Restatement §433A. The EPA argued that this principle is consistent with CERCLA’s purpose of protecting the public. The government argued that Shell was liable as an arranger if the disposal of hazardous waste via leakage and spillage was a foreseeable byproduct of Shell’s sale of the pesticide to B & B and that Shell was jointly and severally liable for the entire $8 million since the harm was not divisible and B & B was insolvent.
The District Court, after a 6-week bench trial, found that the Railroads were liable as an owner of part of the facility and Shell was liable because it had “arranged for disposal ... of hazardous substances,” 42 U. S. C. §9607(a)(3). However , the District Court went on to apportion liability, in a detailed and reasoned factual analysis, holding the Railroads liable for 9% of the Governments’ total response costs based on percentage of property owned , and Shell liable for 6% based on an estimate of the pesticide spilled compared with the amount of contamination from other substances.
On appeal, the Ninth Circuit agreed that Shell could be held liable as an arranger under §9607(a)(3) concluding that an entity could arrange for “disposal” “even if it did not intend to dispose”of a hazardous substance. 520 F. 3d 918, 949 (CA9 2008). Although the Court of Appeals agreed that the harm in this case was capable of apportionment, it found that the District Court erred in finding that the record established a reasonable basis for apportionment and that Shell and the Railroads had failed to meet their burden of proof on the record.. The Court of Appeals reversed the District Court’s apportionment of liability and held Shell and the Railroads jointly and severally liable for the entire $8 million of the Governments’ response costs.
The Supreme Court found that the District Court had reasonably apportioned the Railroads’ share of the site remediation costs at 9% by calculating liability based on three figures—the percentage of the total area of the facility that was owned by the Railroads, the duration of B&B’s business divided by the term of the Railroads’ lease, and the court’s determination that only two polluting chemicals spilled on the leased parcel required remediation and that those chemicals were responsible for roughly two-thirds of the remediable site contamination.
The Supreme Court overturned Shell’s liability as one who “arranged for disposal” finding that in order to qualify as an “arranger” there must be intentional steps to dispose of a hazardous substance. Although the evidence showed that Shell was aware of minor, accidental spills during the transfer of the pesticide it sold to B & B, there was also evidence that Shell took numerous steps to encourage its distributors to reduce the likelihood of spills. The Court found that….” Shell’s mere knowledge of continuing spills and leaks is insufficient grounds for concluding that it “arranged for” D–D’s [the pesticide] disposal.”
It is significant that this action was a cost recovery by EPA, since in its cost recovery actions, EPA has consistently taken the position that site contamination is not a divisible harm and questions of apportionment must be pursued between the parties as contribution actions.
The Supreme Court’s opinion should also terminate EPA’s practice of imposing liability on product manufacturers based on the presumption that the companies must assume that their useful product will be spilled leaked and such spillage and leakage is disposal, so the sale of a product equals arranging for disposal. This strained interpretation has been largely rejected by the Circuit Courts, but some courts, particularly the Ninth Circuit, have adopted the sales = arranging for disposal argument. There should no longer be a question that sellers of product are not liable under CERCLA unless the company entered into the sale of the product with the intention that at least a portion of the product be disposed of by some method.
Justice Stevens delivered the opinion with Justices Roberts, Scalia, Kennedy, Souter, Thomas, Breyer and Alito concurring. Justice Ginsburg filed a dissenting opinion.
The following is a link to the opinion: http://supremecourtus.gov/opinions/08pdf/07-1601.pdf.
This article was authored by Barbara D. Little, Jackson Kelly PLLC. For more information on the author see here.
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