On May 4, 2009, in Burlington Northern & Santa Fe Railway Co. v. United States, the Supreme Court addressed two issues under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq. (CERCLA), which it had never reached before. The first issue was the reach of the useful product defense, which has been generally recognized in principle by the lower courts. The second was the question of what showing is required of defendants to avoid joint and several liability that, for more than 25 years, the lower federal courts have imposed almost as a matter of course.
The Supreme Court's resolution of the first issue has dramatically changed the legal landscape in favor of parties who sent hazardous materials to a facility for a purpose other than waste disposal or treatment. The impact of the Court's ruling on the second issue is less clear, but it seems clear that the days of a near-guarantee of joint and several liability are over.
The case that gave rise to these rulings arose out of the operations of Brown & Bryant, Inc. ("B & B"), a California distributor of agricultural chemicals. In 1960, B & B began its operations on its own parcel of land. In 1975, it expanded its operations to an adjacent parcel rented from two defendants, Burlington Northern and Union Pacific (the "Railroads"). B & B purchased pesticides and herbicides from their manufacturers, one of which was the third defendant, Shell Oil Co. ("Shell").
Originally, Shell's products were delivered to B & B in 55-gallon drums. Beginning in the mid-1960s, Shell required its distributors to maintain bulk storage facilities for D-D, one of its pesticides, and thereafter B & B purchased D-D in bulk.
Bulk shipments contributed to the subsequent environmental problems, however, because spills occurred during transfers to and from B & B's storage facilities. Releases of D-D also resulted from corrosion of valves and tanks by the chemical. Shell was aware of the problem and attempted to alleviate it by providing its distributors with safety manuals, encouraging safe handling by a discount program, and requiring inspections.
Releases persisted, however, and in 1983 the California Department of Toxic Substances ("DTSC") and the United States Environmental Protection Agency ("EPA") began to investigate the site. In 1989, the site was placed on the National Priority List and litigation commenced, initially against B & B, subsequently against Shell and the Railroads, too. By 1989, B & B was insolvent.
The trial court found all three of the defendants liable, assessing the Railroads 9 percent of the cost of remediation and Shell 6 percent. Unusually, the court held that there was a reasonable basis for apportioning the harm, and that therefore the imposition of joint and several liability was inappropriate. The government was therefore left to absorb the orphan share of cleanup costs. Shell appealed the judgment against it based on its useful product defense, and the EPA appealed the determination that a reasonable basis existed for apportioning the costs. The Ninth Circuit affirmed as to Shell's liability, and reversed as to apportionment, and the private parties appealed the case to the Supreme Court.
The Supreme Court reversed the Circuit Court on both issues.
The key to its holding on the useful product defense was the use by Congress of the word "arranged" in Section 107 of CERCLA, 42 U.S.C. §9607 (a)(3). That section imposes liability upon any person who "arranged ... for disposal or treatment, of hazardous substances owned or possessed by such person...." The Court found that the term "arrange," which is defined in Webster's Dictionary as "to make preparations for" or "to plan," implies intentional action. Accordingly, even though the statute includes spilling and leaking in the definition of disposal, the Court held that the government could not prevail unless the spills and leaks were intended by Shell when it sold its pesticides to B & B.
Nor did the fact that Shell was aware that B & B was spilling pesticide establish liability, even though the record contained evidence that the switch to bulk transport of Shell's pesticides was an economic decision, and that spills were inherent to the delivery process. The Court held that (i) the evidence did not indicate that Shell intended the spills to occur, and (ii) knowledge of spills and leaks is not the same as intent.
Because Shell was exonerated from all liability, the precise share allocated to Shell became a moot issue. This was not true of the Railroads' share, and the Court addressed this issue next.
The parties and the Court agreed that the starting point for the apportionment analysis should be §433A of the Restatement (Second) of Torts, which imposes liability on each defendant for the portion of the total harm caused by that defendant, and imposes joint and several liability for the entire harm if the harm is a single and indivisible one. The issue was how the Restatement rule should be applied.
The trial court had noted that (i) the Railroad property constituted 19 percent of the total surface area used by B & B; (ii) that the Railroad property was used for only 45 percent of the facility's lifetime; and (iii) that only two-thirds of the chemicals causing contamination were spilled on the Railroad property. Based these factors, the court multiplied .19 by .45 by .66 to arrive at 6 percent, then increased that figure by a factor of 50 percent (to account for any errors in calculation), which came to a final figure of 9 percent for the Railroads' share. The Ninth Circuit reversed, holding that the evidence was insufficient to establish the precise proportion of contamination that originated on the Railroad property, and that the trial court's calculation was basically just a crude estimate.
The Supreme Court reversed, finding that the record reasonably supported the trial court's determination, in light of factual findings that most of the contamination on the property arose from a pond and a sump on the B & B property—both located at some distance from the Railroad property—and that the Railroad property contributed no more than 10 percent of the total contamination. With those facts as background, the Court held that it was not unreasonable for the trial court to have used the relative areas of the facilities and the relative durations of use of the parcels. The two-thirds multiplier that the trial court applied (based on the fact that only two of the chemicals were used on the Railroad property) was questionable, but harmless in light of the 50 percent "margin of error" correction, which essentially eliminated the two-thirds multiplier.
The implications of Burlington Northern should be profound in any case in which a hazardous material was transported to a site for a purpose other than disposal or treatment. Although the Court qualified its holding by noting that the determination of liability under Section 107 (a)(3) is fact-intensive, the Court's holding that the term "arranged" implies intent is a rule that will always apply. Accordingly, not only sellers of virgin chemicals, but entities engaged in transactions to re-sell chemicals, or to repair, consign for resale or lease equipment or containers, may also find that they have a viable defense. The ultimate impact of the Court's holding on apportionment is less easy to predict, but it appears that the days when the courts would strain to hold defendants jointly and severally liable to avoid saddling the government with an orphan share are over. Instead, if a trial court apportions liability in a way that is reasonable based on all the facts of record, it should be upheld. What is also clear is the fact that the government—and any private parties who perform cleanup and then seek to pursue other parties to reimburse their costs—now will have greater difficulty in passing off the "orphan share" liability to others. In cases where the orphan share is significant, it is easy to foresee allocation experts being presented by both sides in an effort to provide the court with a basis for apportionment using more sophisticated methods than the Burlington Northern trial court used.
In Burlington Northern, the defendants were the owners of a distinct parcel of property, so their individual contribution to the overall contamination could be identified on a geographical basis, an approach that will not apply in the majority of cases. However, Burlington Northern should be found to extend beyond cases involving distinct parcels because the Supreme Court quoted with approval the statement of the Ninth Circuit that if sufficient information is available, apportionment "may be established by volumetric, chronological or other types of evidence." Previously, the lower courts have generally paid lip service to this rule without applying it in practice, because the courts very rarely found the available evidence to be "sufficient." The Ninth Circuit's decision was typical of this approach. However, given the rough-and-ready nature of the apportionment that was upheld in Burlington Northern, it appears that in the future, apportionment will be possible in many cases.