'Arranger' liability under CERCLA requires intent to dispose and apportionment of CERCLA liability upheld where there is reasonable basis

On May 4, 2009, the United States Supreme Court reversed two Ninth Circuit rulings in Burlington Northern & Santa Fe Railway Co. v. United States, and Shell Oil Company v. United States, in a decision with significant implications for potentially liable parties under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"). In an 8 to 1 decision, with likely far-reaching ramifications for the investigation and clean-up of contaminated sites, the Supreme Court held: (1) knowledge alone of continuing spills and leaks is insufficient grounds for deeming a company an "arranger" unless that company took intentional steps to dispose of hazardous substances; and (2) in lieu of joint and several liability, CERCLA liability can be reasonably apportioned among potentially responsible parties if there are sufficient facts to support the apportionment.

Background:

In 1960, Brown & Bryant, Inc. ("B&B") operated a chemical distribution company, a portion of which was on land leased from the predecessors of Burlington Northern and Santa Fe Railroad Company. Shell Oil Company, among others, supplied hazardous chemicals to B&B. Over the course of B&B's operations, hazardous substances, including those from Shell, seeped into the soil and groundwater. B&B initiated the clean-up of the contamination, but became insolvent prior to its completion. The United States EPA issued an administrative order and later, together with its state counterpart, sued the Railroads and Shell under CERCLA in the U.S. District Court for the Eastern District of California.

The lower court found that the Railroads and Shell were potentially responsible parties under CERCLA because the Railroads owned a portion of the land and because Shell had arranged for the disposal of hazardous substances by selling and delivering hazardous substances to B&B.

The lower court also concluded that, while the contamination created a single harm, this harm was divisible and could be apportioned as to the Railroads and Shell. It allocated liability based upon: (1) the percentage of the total area of the operations that was on land owned by the Railroads, (2) B&B's years of operation divided by the term of its lease with the Railroads, and (3) a finding that only two of three chemicals spilled on the leased land were linked to the remediation and that those two chemicals were roughly two-thirds of the overall contamination. The court deemed the Railroads liable for 9 percent of the remediation costs and allocated 6 percent of the overall liability to Shell. The United States appealed the lower court's decision.

The Court of Appeals determined that Shell was not an "arranger" in the traditional sense of the word, but nonetheless found Shell liable as an "arranger" under CERCLA because disposal of the hazardous substances Shell supplied was a foreseeable byproduct of Shell's dealings with B&B. The Court of Appeals reversed the lower court's apportionment of liability, finding that there was not sufficient evidence to establish a reasonable basis for this apportionment. The Railroads and Shell were deemed jointly and severally liable.

The questions then before the Supreme Court were: (1) whether Shell was an "arranger" under CERCLA; and (2) whether Shell and the Railroads were jointly and severally liable for all clean-up costs incurred by the federal and state governments.

Shell Not an "Arranger" Under CERCLA:

The Supreme Court looked at the plain language of CERCLA, stating that "an entity may qualify as an arranger under §9607(a)(3) when it takes intentional steps to dispose of a hazardous substance." Acknowledging that a company's knowledge that its product will be disposed of may provide evidence of that company's intent to dispose of its hazardous wastes, the Court then held that knowledge alone is insufficient to prove that the company planned the disposal, especially where, as here, disposal occurred as an incidental consequence of the sale of the product. To qualify as an arranger, Shell must have entered into the sale of its hazardous products with the intent that some of these products would be disposed of during the delivery to B&B. The Court found no evidence of such intent.

Shell and the Railroads Not Jointly and Severally Liable:

As a general rule, there is apportionment of CERCLA liability among potentially responsible parties when there is a reasonable basis for determining the contribution of each party to the single harm. The Supreme Court agreed that there was satisfactory evidence to support the lower court's assessment of the Railroads' share of the remediation costs. In so doing, the Court upheld the lower court's methodology for apportioning liability to the Railroads. The Court declined to address the lower court's approach to apportioning liability to Shell, having concluded that Shell was not a liable party under CERCLA. With apportionment, the government will not recover the so-called "orphan" share of remediation costs; that is, those costs allocable to an insolvent or defunct liable party.

This Supreme Court decision will impact the progress of investigation and remediation of Superfund properties. The universe of potentially responsible parties has arguably been reduced and there are implications affecting the extent of anticipated recovery of remediation costs by the government as well as other parties. The emphasis on facts either evidencing "intent" or providing a basis for apportionment assures intensified efforts to discover often elusive historical information about these properties and the circumstances relating to their contamination.