One of the most dreaded aspects of the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) is that under the principle of joint and several liability, a potentially responsible party (PRP) may be compelled to pay for all of the cleanup costs at a CERCLA site, leaving such PRP to pursue a contribution action under §113(f) of CERCLA against other PRPs whom the government, for whatever reason, decided not to pursue. Further, the PRP may be required to pay for the “orphan share” of an insolvent PRP, who is often most responsible for the contamination.
Despite the many cases where joint and several liability has been imposed, courts have generally recognized that liability under CERCLA should be governed by traditional and evolving principles of the common law. The Restatement of Torts §433A describes the common law as providing that the liability of jointfeasors (e.g., PRPs) should be apportioned where there is a “reasonable basis for determining the contribution of each cause to a single harm.” Where no “reasonable basis” for apportionment exists, joint and several liability should be imposed.
Earlier this week in Burlington Northern & Santa Fe Railway v. United States, No. 07-1601 (May 4, 2009) (hereafter BNSF), the Supreme Court, for the first time, addressed the circumstances under which it is appropriate for lower courts to apportion liability under CERCLA. The Court made clear that the apportionment need not be based on mathematical certainty and detailed records but rather can be based on reasonable estimates of responsibility that consider factors such as the length of time the hazardous substances were used, the area of use, and the extent to which the use could have contributed to the contamination. The Court ruled that when the apportionment is reasonable, joint and several liability should not be imposed on a PRP. This ruling should encourage a PRP to introduce, and a lower court to accept, evidence leading to a reasonable apportionment of CERCLA liability so that the PRP is not made to shoulder, jointly and severally, the liability of other PRPs, including orphan shares.
In the same opinion, the Court also addressed under what circumstances a party can be liable under CERCLA §107(a)(3) for “arranging for” disposal of hazardous substances. The Court held that for CERCLA liability to attach, a party must take intentional steps to dispose of the hazardous substance. Thus, the Court ruled that a supplier of chemicals is not liable under CERCLA even if the supplier knew that the chemicals would occasionally be spilled when delivered, so long as the supplier has no intent to dispose of the chemicals. The Court’s ruling on this issue will help to protect from CERCLA “arranger” liability sellers of chemicals and others who do not intend that their hazardous substances be disposed or treated.
The Court’s decision can be obtained by clicking on the following link:
The BNSF case involved three parties: Brown & Bryant Inc. (B&B) operated a chemical repackaging and distribution business on a 4.7-acre parcel, 3.8 acres of which was owned by B&B and 0.9 acres of which was leased from a predecessor to the Burlington Northern and Santa Fe Railroad and Union Pacific Railroad (Railroads). Aside from leasing the 0.9 acres to B&B, the Railroads took no part in B&B’s operations. The third party, Shell Oil (Shell), sold a pesticide to B&B, shipping it via commercial carrier FOB destination, meaning that Shell transported the chemical at its own expense and risk until it reached B&B’s facility. Shell’s product would arrive at B&B’s facility by truck and would be transferred to B&B’s storage tanks via hoses. Despite steps Shell took to encourage B&B to transfer the pesticide without spilling it, spills occurred. Indeed, most of the contamination at the site resulted from B&B’s sloppy operations that were unrelated to the Railroads’ property or Shell’s pesticide sales.
In 1988, California’s Department of Toxic Substances Control (DTSC) ordered B&B to remediate soil and groundwater contamination at its facility. Before B&B could address the contamination, it became insolvent and went out of business. EPA listed the site on the National Priority List in 1989, and later named both Shell and the Railroads as PRPs. The DTSC and EPA conducted response actions at the site, spending more than $8 million. In 1996, DTSC and EPA filed cost recovery actions under CERCLA §107(a)(4)(A) against the Railroads and Shell. The Governments asserted that the Railroads were liable under CERCLA §107(a)(1)-(2) as owners of a portion of the facility from which the releases had occurred, and that Shell was liable under CERCLA §107(a)(3) as a party that “arranged for disposal” of some of the released hazardous substance.
The Supreme Court, in an 8-1 decision, reversed the Ninth Circuit Court of Appeals on both the arranger and the joint and several liability issues. The Court explained that in order for Shell to be considered liable as an arranger, the “plain language” of the statute requires a finding that Shell took “intentional steps to dispose of a hazardous substance.” Although Shell was aware that minor, accidental spills occurred during the transfer of the pesticide from the common carrier to B&B’s bulk storage tanks, the Court found that the evidence did not support an inference that Shell intended such spills to occur. In fact, Shell took numerous steps to encourage B&B to reduce the likelihood of such spills providing B&B with safety manuals, requiring B&B to maintain adequate storage facilities, and providing discounts to its distributors that took safety precautions.
The Court also confirmed that CERCLA does not mandate joint and several liability in every case. Rather, the Court found that liability should be apportioned when “there is a reasonable basis for determining how much each PRP has contributed to the overall harm.” The Court noted that PRPs who seek to avoid joint and several liability bear the burden of proving a reasonable basis for apportionment, and therefore, the question in BNSF was whether the record provided a reasonable basis for the District Court’s apportionment of 9% of the liability to the Railroads.
The District Court’s 9% allocation was based on it finding that the Railroads’ property was 19% of the total size of the site, that the Railroads operated for 45% of the time B&B operated on the facility, and that the chemicals handled on the Railroads’ property contributed to 66% of the overall site contamination requiring remediation. The District Court multiplied .19 by .45 by .66 and rounded up to determine that the Railroads were responsible for approximately 6% of the response costs. To compensate for the possible miscalculation inherent in evaluating the causes of contamination, the District Court then added a 50% margin of error concluding that the Railroads should be held responsible for 9% of the total CERCLA response costs. The District Court had also calculated Shell’s portion of liability at 6%. This left 85% (100%-9%-6%) of the liability assigned to B&B, the insolvent PRP. The District Court ruled that the Governments would have to bear the cost of the 85% orphan share, while the Railroads would be responsible for 9%, and Shell for 6% of the response costs.
The Ninth Circuit U.S. Court of Appeals disagreed, finding that the District Court’s apportionment to be too simplistic and too reliant on estimates rather than specific, detailed records. Since the liability had not been reasonably apportioned and since the burden of proof was on the PRPs, the Court of Appeals ruled that Shell and the Railroads would be jointly and severally responsible for the total response costs, including the 85% orphan share.
The Supreme Court, however, reversed the Court of Appeals. The Supreme Court ruled that the record reasonably supported the District Court’s apportionment of only 9% of the liability on the Railroads. The Court did not have to address the Shell apportionment, because it held that Shell was not liable at all because it had not arranged for disposal. Thus, the Government was left having to bear 91% of the total response costs for the orphan share caused by B&B’s activities.
Implications of BNSF Decision
Chemical manufacturers and other sellers of chemicals should take comfort in the Court’s ruling that they will not be liable under CERCLA when they sell chemicals, even if they have knowledge that there will be occasional spills of the chemicals. For arranger liability to attach, there must be an intent by the company that at least a portion of its product be disposed of during the sale and transfer process. This holding should also bolster the defense to arranger liability in other contexts when the disposal or treatment of the hazardous substances is done by a third party or is merely incidental to the company’s legitimate commercial activities. For example, it may now be easier to convince a court that a company that uses a toll manufacturer to formulate a product is not liable under CERCLA as an arranger for the cleanup of contamination at the toll manufacturing facility.
With regard to the issue of joint and several liability, it is very significant that there is now a ruling by the highest court that a reasonable apportionment need not be calculated precisely or based on detailed records, but rather can be based on estimates of relative harm considering a variety of factors. This ruling should encourage PRPs to present and lower courts to accept evidence to support a reasonable apportionment of CERCLA liability. As a result, joint and several liability should become less commonplace. Of course, this also means that there will likely be more litigation in lower courts over reasonable apportionments, more times the government will end up having to pay for orphan shares, and thereby, more reason, some may contend, to reinstate the Superfund tax to pay for the orphan shares.