On May 4, 2009, the United States Supreme Court issued a landmark decision that will have broad implications for potentially responsible parties (PRPs) at multi-party Superfund sites. In Burlington Northern & Santa Fe R. Co. v. United States (BNSF), by an 8-1 majority, the Court addressed two important issues concerning the scope of CERCLA liability.1 This was also the third consecutive decision this term in which the Court reversed the Ninth Circuit in an environmental case.
First, the Court clarified the scope of “arranger” liability under CERCLA, holding that defendants engaged in the sale of useful products must have “intent” to dispose hazardous substances. The practical effect of this decision is to restore a measure of certainty to the “useful product” defense, previously recognized by numerous circuit courts. However, it undoubtedly will compel much closer scrutiny by courts and litigants regarding the factual circumstances surrounding PRPs’ conduct and intent in “arranging” for the disposal of wastes.2
More significantly, the Court held that joint and several liability may not be imposed under CERCLA where a “reasonable basis” for apportionment exists. Until now, courts have routinely imposed joint and several liability at multi-party Superfund sites involving commingled waste, due to the challenges PRPs faced to prove divisibility of harm. However, the Supreme Court effectively relaxed defendants’ burden of proof by approving the use of approximations that are reasonably supported by evidence to apportion liability.
Potential ramifications of the BNSF decision include the following:
- increased difficulty for the government to compel PRPs to pay cleanup costs attributable to other parties based on the threat of joint and several liability;
- increased litigation focused on the “intent” of arrangers;
- an evaluation, or re-evaluation, by PRPs at Superfund sites regarding the pros and cons of early settlement (particularly at sites with a significant percentage of “orphan shares” attributable to insolvent or defunct entities);
- increased litigation focused on the type and quality of evidence sufficient to demonstrate divisibility of harm and a “reasonable basis for apportionment”; and
- The Environmental Protection Agency (EPA) may be forced to absorb substantially more cleanup costs attributable to “orphan parties” at Superfund sites, which, in turn, will increase pressure on Congress to reinstate the Superfund tax.
Brown & Bryant, Inc. (B&B) operated an agricultural chemical distribution business, sited on 3.8 acres of former farmland in Arvin, California. B&B later expanded onto an adjacent .9 acre parcel jointly owned by two railroad companies (railroads). The railroads never engaged in any operations at the facility.
B&B stored and distributed various hazardous chemicals on the properties, including the pesticide D-D, supplied by Shell. When the D-D arrived, it was transferred from tanker trucks to a bulk storage tank located on B&B’s primary parcel. During each of these transfers, small leaks and spills often occurred.
Aware that spills of D-D by its distributors were common, Shell implemented various measures to encourage the safe handling of its products. These efforts included developing detailed safety manuals, instituting a voluntary discount program for distributors that made safety handling and facility improvements, and requiring distributors to perform inspections and provide self-certification of compliance with applicable laws and regulations. B&B conducted inspections and certified to Shell that it had made a number of recommended improvements to its facilities.
Despite these improvements, B&B remained a “sloppy operator.”3 Delivery spills, equipment failures and the rinsing of tanks and trucks resulted in numerous releases of chemicals. In 1983, the California Department of Toxic Substances Control (DTSC) initiated a site investigation, joined shortly thereafter by EPA. The agencies’ investigation revealed significant soil and groundwater contamination. By 1989, B&B had become insolvent. That year, the facility was added to the National Priorities List, and DTSC and EPA subsequently exercised their authority to undertake cleanup efforts.
By 1998, the agencies had accrued more than $8 million in cleanup costs. Meanwhile, in response to an administrative order, the railroads had spent more than $3 million in remedial expenses. The railroads filed suit against B&B, and DTSC and EPA brought cost recovery actions against Shell and the railroads; both cases were consolidated in the Eastern District of California.
Following a lengthy bench trial, the district court prepared a detailed decision holding that both the railroads and Shell were PRPs under CERCLA. The railroads were found liable under section 107(a)(1)-(2) of CERCLA based on their status as “owners” of a portion of the facility at the time releases of hazardous substances had occurred. Shell was found liable under section 107(a)(3) of CERCLA because it had “arranged for” the disposal of hazardous substances through its sale and delivery of the pesticide D-D.
In holding the railroads and Shell liable, the district court declined to impose joint and several liability with regard to the governments’ response costs. In finding that site contamination created a “single harm,” the court nonetheless concluded that the harm was divisible and reasonably capable of apportionment.
With respect to apportionment, the district court utilized three figures to determine the railroads’ share of liability: (1) the percentage of land at the facility they owned; (2) the duration of the railroads’ lease in relation to B&B’s overall time operating at the facility; and (3) a determination that only two of three chemicals required remediation, and had caused roughly two-thirds of remedial costs. Based on this, the court apportioned nine percent of the governments’ total response costs as the railroads’ share of liability. The district court held Shell liable for six percent of response costs, based on the estimated total volume of its products spilled.
Since B&B was insolvent, the district court’s allocation resulted in an “orphan share” comprising 85 percent of the governments’ total response costs, which it declined to allocate to the railroads or Shell. Appeals by the governments, and a cross-appeal by Shell, ensued.
The Ninth Circuit acknowledged that Shell did not qualify as a “traditional” arranger under CERCLA section 107(a)(3), insofar as it had not contracted with B&B to directly dispose of a hazardous product.4 Nevertheless, the court decided that Shell could still be held liable under a “‘broader’ category of arranger liability” if the “disposal of hazardous wastes [wa]s a foreseeable byproduct of, but not the purpose of, the transaction giving rise to” arranger liability.5 Relying on CERCLA’s definition of “disposal,” which covers acts such as “leaking” and “spilling,” the Ninth Circuit concluded that an entity could arrange for a disposal “even if it did not intend to dispose” of a hazardous substance.6 Applying this theory of arranger liability to the district court’s findings of fact, the Ninth Circuit held that Shell arranged for the disposal of a hazardous substance through its sale and delivery of the chemical product D-D.
With respect to the apportionment of liability, the Ninth Circuit affirmed the underlying principles of the divisibility doctrine and acknowledged that “apportionment is available at the liability stage in CERCLA cases.”7 However, the court held that the district court erred in finding there was a reasonable basis for apportionment based on the factual record and criteria applied. In sum, the Ninth Circuit rejected the trial court’s approach as too simplistic and held Shell and the railroads jointly and severally liable under CERCLA for government response costs.
Shell and the railroads moved for rehearing en banc, which the Court of Appeals denied over the blistering dissent of eight judges. Judge Bea’s written dissent bluntly stated, “If this evidence does not provide a ‘reasonable estimate’ for apportionment of liability, I do not see how – short of ‘perfect information’ sufficient to trace every molecule of pollution to the landlord’s parcel – apportionment could ever be possible under CERCLA.”8 Petitions for writs of certiorari followed and were granted.
Justice Stevens wrote the Court’s opinion, in which an 8-1 majority reversed the Ninth Circuit’s rulings on both arranger liability and apportionment of liability under CERCLA.
a. Arranger Liability
The Supreme Court held that an entity may qualify as an arranger under CERCLA if it takes intentional steps to dispose of a hazardous substance.9 Finding that Shell had mere knowledge of spills, without the requisite intent to cause a disposal of hazardous substances, the Court held that Shell was not liable as an arranger.
CERCLA section 107(a)(3) applies to an entity that “arrange[s] for disposal . . . of hazardous substances.”10 The Court noted that, under CERCLA’s plain language, arranger liability attaches where an entity enters into a transaction “for the sole purpose of discarding a used and no longer useful hazardous substance.” 11 On the opposite end of the spectrum, the Court reaffirmed that an entity cannot be held liable as an arranger “merely for selling a new and useful product if the purchaser . . . later, and unbeknownst to the seller, disposed of the product in a way that led to contamination.”12 The Court recognized that less clear is the liability “attaching to the many permutations of ‘arrangements’ that fall between these two extremes” where the seller has some knowledge of buyers’ planned disposal or whose motives for the “sale” of a hazardous substance are less than clear.13
With regard to Shell, the Court rejected the governments’ argument that Shell’s continued participation in delivery of its product, with knowledge of recurring spills and leaks upon transfer, was sufficient to establish Shell’s intent to dispose of a hazardous substance. The court stated: “knowledge alone is insufficient to prove that an entity ‘planned for’” a disposal.14 Given its uniquely favorable facts, Shell’s mere knowledge that occasional spills and leaks of its product occurred was insufficient grounds to conclude that Shell “arranged for” a disposal of hazardous substances within the meaning of CERCLA section 107(a)(3).15
b. Joint & Several Liability and Apportionment of Harm
The Supreme Court next addressed the issue of whether the railroads could be held jointly and severally liable for the entirety of the governments’ response costs. The Court concluded that the railroads’ share of site remediation costs were reasonably capable of apportionment based on the record, and determined that the district court had achieved a reasonable allocation of liability.
Although CERCLA imposes a strict liability standard, it does not mandate the imposition of joint and several liability.16 Referencing section 433A of the Restatement (Second) of Torts as the appropriate “starting point,” the Court held that, while under CERCLA defendants have the burden of proving divisibility of harm, “apportionment is proper” where there are distinct harms or when there is “a reasonable basis for determining the contribution of each cause to a single harm.”17
The Supreme Court concluded that the factual record presented in this case reasonably supported the apportionment of liability. The Court stated that the district court’s “detailed findings” made it “abundantly clear” that contaminant spills on the railroads’ property contributed to a relatively small percentage of total contamination at the site, some of which did not require remediation.18 Given these facts, the Court determined it was reasonable for the trial court to use the factors relied upon (e.g., size of parcels, contaminant, contaminant types) to apportion liability. Accordingly, the Court reversed the Ninth Circuit’s decision that the railroads were subject to joint and several liability for all response costs arising out of contamination at the facility, and upheld the findings of the district court.
Implications of the BNSF Decision
The BNSF decision will have a number of important ramifications for defendants involved in CERCLA litigation at multi-party Superfund sites, and business engaged in the manufacture or distribution of petrochemical and other products that contain “hazardous substances.”
Since the passage of CERCLA, defendants have routinely been held jointly and severally liable by courts for cleanup costs, rather than being assessed their “fair share” of liability based on their actual or estimated contribution of waste. In BNSF, however, the Supreme Court determined that joint and several liability may not be imposed under CERCLA where a “reasonable basis” for apportionment exists. This is consistent with Congress’ original intent that liability under CERCLA should be reasonably apportioned consistent with principles of common law. Otherwise, businesses faced potentially enormous liabilities for the costs of cleaning up wastes they did not generate or dispose.
With regard to “arranger” liability, the Supreme Court’s decision was likewise very important, as the Ninth Circuit had found Shell liable based on sales chemicals to a third party, who in turn caused releases and contamination to occur. The Court held that a party’s mere knowledge of leaks and spills by a third party at a contaminated site, without intent to dispose of hazardous substances, does not create liability under CERCLA.
The BNSF decision will have practical impacts on PRPs and businesses involved in cost recovery disputes at Superfund sites. The Court’s decision will likely make it more difficult for governments to recover cleanup costs from PRPs that have contributed relatively small percentages of contaminants based on the potential threat of joint and several liability for all response costs. This is especially the case where PRPs can present evidence supporting a reasonable basis for apportionment. Needless to say, litigants can expect a great deal of focus on what constitutes a “reasonable basis” for apportionment, the nature and quality of requisite evidence, and the methodology utilized by courts to achieve reasonable approximations of liability allocations.
At existing or future sites with significant “orphan shares,” the decision may lead PRPs to evaluate, or re-revaluate, the pros and cons of early settlement, since entities primarily responsible for causing pollution may now face a greater share of response costs.
The decision may alleviate concerns that the routine sales of useful products containing hazardous substances that are subsequently spilled or released by another party could trigger CERCLA arranger liability. With potentially greater difficulty in allocating shares of cleanup costs to arranger parties, the corresponding financial burden to other categories of PRPs may increase. In any event, there will no doubt be much closer scrutiny by courts and litigants regarding the factual circumstances surrounding PRPs’ conduct and intent in “arranging” for disposal of wastes.
Finally, given that EPA may be forced to absorb substantially more cleanup costs attributable to “orphan parties” at Superfund sites, there may be further pressure applied to Congress to reinstate the Superfund tax.