On May 4, 2009, in an 8-1 decision, the United States Supreme Court expanded protection from CERCLA liability for sellers of “useful products” and addressed the threshold for establishing allocation of response costs among potentially responsible parties (“PRPs”). Burlington Northern & Santa Fe Ry. Co. v. United States, No. 07-1601, 556 U.S. ___ (2009).
Beginning in 1960, B&B operated a chemical distribution facility on a parcel next to land owned by predecessors to the Burlington Northern & Santa Fe and the Union Pacific railroads (“the Railroads”). In 1975, B&B leased part of the Railroads’ property to expand its operations. B&B distributed chemicals which were also classified as hazardous substances: dinoseb, D-D and Nemagon, the latter two of which were manufactured by Shell. In the 1960s, Shell required its distributors to use bulk distribution for D-D. Shell would send the chemicals to B&B by common carrier, with the shipping term “free on board destination.” During the transfer from the common carrier to B&B’s bulk operation “leaks and spills could–and often did–occur.” Id. slip. op. at 3. “Aware that spills of D-D were commonplace among its distributors . . . Shell took several steps to encourage safe handling of its products,” including site inspections and a program that provided discounts for safety improvements. Id.
Over the course of B&B’s operations, dinoseb, D-D and Nemagon were allowed “to seep into the soil and upper levels of ground water” at the B&B facility. Id. at 3-4. California’s Department of Toxic Substances Control (“DTSC”) and U.S. EPA both investigated the site. B&B “undertook some efforts at remediation,” but it became insolvent in 1989. Id. at 4. The facility was added to the National Priorities List and U.S. EPA issued an administrative order forcing the Railroads, as the landlord of a portion of the B&B facility, to undertake certain remedial tasks at the facility. Two CERCLA actions ensued: the Railroads sought cost recovery from B&B; and U.S. EPA and DTSC sought cost recovery from the Railroads and Shell, who, the agencies contended, “arranged” to dispose of hazardous substances at the B&B facility. Shell, in response, argued that it was not an “arranger,” as defined in CERCLA, 42 U.S.C. § 9607(a)(3), but instead was the seller of a useful product that B&B mishandled. Shell had never entered into a contract with B&B to dispose of any hazardous waste or substance.
The district court held that Shell was liable at the facility as an arranger, and could not use the “useful products” defense. See United States v. The Atchison, Topeka & Santa Fe Ry. Co., 2003 U.S. Dist. LEXIS 23130, *192-*208 (E.D. Cal. Jul 14, 2003). The district court also held that the harms were divisible and thus found the Railroads liable for a portion of the response costs. Id. at *250-61. The district court calculated a 9% allocation for the railroads after considering three factors. First, the district court considered the percentage of the land the Railroads leased to B&B relative to the total area of the B&B facility, 19.1%. Second, the district court noted the number of years B&B leased land from the Railroads relative to the total number of years B&B operated, and concluded that B&B leased the Railroads’ property 45% of the period of time that it operated. Third, the district court found that only two of the three chemicals, D-D and Nemagon, were stored on the Railroads’ property, or 66% of the chemicals that impacted the soil. Multiplying the three percentages together and rounding up, the district court arrived at a 6% allocation of liability for the Railroads, but increased the allocation by three additional percentage points to 9%, after allowing a 50% fudge factor for “calculation errors.” Id. at *259-61.
The Ninth Circuit affirmed the district court as to Shell’s liability as an “arranger,” but reversed as to the divisibility-of-harm, or allocation, issue. United States v. Burlington Northern & Santa Fe Ry., 479 F.3d 1113 (9th Cir. 2007) amended by 502 F.3d 781 (9th Cir. 2007) amended by 520 F.3d 918 (9th Cir. 2008). With regard to arranger liability, the Ninth Circuit held that Shell was liable under a “broader” concept of arranger liability than one that is based on intentional disposal. 520 F.3d at 948-49. The Ninth Circuit acknowledged that Shell may not have contracted, or arranged, for the disposal of hazardous substances. However, the Ninth Circuit also noted that Shell had knowledge that transfers of the chemicals it sold involved “disposals,” i.e., that spills and leaks that routinely occurred when such products were handled at B&B’s facility. The Ninth Circuit was not persuaded by Shell’s product stewardship efforts, instead holding that those efforts showed Shell’s control of the product handling process. Furthermore, the court held, the “useful product” defense did not apply, because, in this case, “the sale of a useful product necessarily and immediately result[ed] in the leakage of hazardous substances . . . the hazardous substances are never used for their intended purposes.” Id. at 950. The Ninth Circuit held that because Shell controlled the delivery process and knew about the alleged leaks, it was liable for the releases, as an “arranger.” Id.
With regard to cost apportionment, the Ninth Circuit held that CERCLA costs are divisible in some cases and should be divided according to Restatement (Second) of Torts, § 433A. However, the Ninth Circuit held that the evidence relied upon by the district court was insufficiently precise to support the actual percentage it reached, because (1) the B&B site was a single facility, (2) there was no supporting evidence that the operations at the facility were uniform over time to use a percentage of time as a proxy for chemicals released and (3) there was no evidence that the two of the three chemicals stored at the facility were responsible for two thirds of the response costs. Id. at 943-45.
On the appeal to the Supreme Court, Justice Stevens, writing for the majority of the Court, first held that Shell was not liable as an arranger within the ordinary meaning of the term. Analyzing the statutory language, the Court noted that CERCLA does not define “arranger,” but under its common definition, “the word ‘arrange’ implies action directed to a specific purpose.” 556 U.S. ___, slip. op. at 10. The Court held that, although “disposal” could be unintentional, the specific intent required by “arrange” showed that Congress sought to apply arranger liability only to entities that expressly intended to dispose of hazardous substances. Id. at 11-12. Thus, held the Court, knowledge that a disposal may occur may be evidence of the requisite intent, but it is not sufficient. Id. at 12. The Court noted that although Shell was aware of “minor, accidental spills . . . during the transfer of D-D,” Shell’s extensive product stewardship efforts showed that Shell did not intend for disposal of its product, regardless of the level of success of its stewardship efforts. Id. at 12.
Turning to the issue of the Railroads’ apportionment of liability, the Supreme Court held that the evidence cited by the district court “reasonably supported” the 9% allocation of liability to the Railroads. The Supreme Court agreed with the Ninth Circuit that the Restatement (Second) of Torts § 433A is the proper beginning point for an allocation analysis, and that the standard under that section was whether the evidence “reasonably supported” apportionment. Id. at 14. Although the Court noted that the district court’s decision to adjust the allocation because only two of the three chemicals sold by B&B were found on the Railroads’ property had “less support in the record,” the Court held that the 50% margin of error factor the District Court used to raise the allocation from 6% to 9% rendered “any miscalculation on that point . . . harmless,” noting that if the district court had omitted the two-thirds factor and the margin-of-error adjustment, it would have arrived at 9% anyway. Id. at 18. The Supreme Court thus concluded that the district court’s decision to allocate 9% of the liability to the Railroads was reasonably supported by the evidence before it.
The Supreme Court’s treatment of arranger liability shows that § 9607(a)(3) liability remains a fact-intensive inquiry in which a CERCLA plaintiff will have to show that the seller of a hazardous substance that is a useful product actually intended its product, or some portion of it, to be disposed pursuant to the normal course of dealing. At the same time, the seller of a useful product can mitigate its potential liability as a potential “arranger” with a good product stewardship program. The Supreme Court also affirmed the standard approach to the allocation of liability under CERCLA, which the lower courts have used for over 25 years.