The Supreme Court’s decision in Burlington Northern and Santa Fe Railway Co v. United States is its most significant opinion on the Comprehensive Environmental Response, Compensation and Liability Act, i.e. CERCLA or Superfund, in years. The Court dramatically narrowed the scope of liability for certain categories of potentially responsible parties under CERCLA. For arrangers, the EPA must now prove intent, not just knowledge, when establishing arranger liability. For all other potentially responsible parties, the Court’s decision affects how Superfund clean-up costs will now be apportioned: to avoid joint and several liability, evidence supporting apportionment need only be reasonable, not precise. We will keep you apprised of new developments as the implications of this decision unfold. For an insightful synopsis of the decision’s effect on arranger liability and apportionment, continue reading.
The underlying case involved claims arising from the contamination of soil and groundwater caused by the defunct operator of an agricultural chemical storage and distribution facility. After spending millions of dollars cleaning up the property, the United States Environmental Protection Agency and the California Department of Toxic Substances sued several companies to recover costs under CERCLA. PRPs included the railroad, as the owner of a portion of the property on which the facility was located, and Shell Oil Company, a supplier of pesticides and other chemical products to the facility.
A California District Court found the railroad liable based on its ownership status and found Shell liable because it “arranged” for the disposal of hazardous substances at the facility. The district court considered evidence presented by the PRPs with respect to the nature, location and duration of the spills of hazardous substances and apportioned 15% of the cleanup costs to be shared by the railroad and Shell. The Ninth Circuit Court of Appeals affirmed the portion of the judgment that imposed liability on Shell as an arranger and reversed the portion of the judgment with respect to apportionment, finding that the railroad and Shell had not introduced sufficient evidence to support their burden of proof on the question of apportionment, and holding them both jointly and severally liable for the entire cleanup. The United States Supreme Court heard argument on the case in February 2009.
A party is liable for cleanup costs under CERCLA if it “arranged for disposal or treatment…of hazardous substances owned or possessed” by that party. In this case, Shell had delivered chemicals to the distribution facility, where the chemicals spilled and leaked in the course of the facility’s operations. The Ninth Circuit found that Shell was liable as an “arranger,” even if it did not intend to dispose of the product, because under CERCLA, the definition of “disposal” includes “leaking,” and it was foreseeable that Shell’s delivery process to the site could result in leaking.
The Supreme Court disagreed, finding that knowledge that a product will be leaked or spilled is insufficient to establish arranger liability. Significantly, the Court’s holding limits the scope of arranger liability by requiring an element of intent, thereby reducing CERCLA liability exposure for those companies who routinely handle and sell commercial chemical products. As a result, there will likely be fewer PRPs for the EPA to pursue as arrangers, which, while potentially good news for arrangers, may translate into more liability for owners of contaminated land and generators of hazardous waste.
Courts have long held that under CERCLA, PRPs are jointly and severally liable to the government for the costs of clean up, unless those parties can prove there is a reasonable basis for apportioning the harm among the parties. In this case, the District Court apportioned the railroad’s liability based on percentages of land ownership, periods of ownership and rough estimates of the volume of releases. Although the Ninth Circuit noted that apportionment of the harm was possible, it criticized the evidence on which the District Court relied, finding that it was insufficient to establish the “precise proportion” of the railroad’s responsibility.
In reversing the Ninth Circuit, the Supreme Court held that the evidence supporting apportionment need not be precise; rather, there must simply be “facts contained in the record reasonably support[ing] the apportionment of liability.” The Court upheld the District Court’s basis for apportionment as reasonable, even though it was inexact and at least somewhat based on estimates rather than empirical evidence.
The Court’s decision has significant implications for CERCLA’s presumption of joint and several liability. By expanding the universe of factors that litigants may use to demonstrate reasonable apportionment and reducing the evidentiary burden required to apportion liability, the decision will support arguments by PRPs in negotiations or litigation with EPA that they can only be held responsible for the contamination they caused, as opposed to contamination caused by others. To the extent that other parties are defunct, as is often the case at Superfund sites, the government may now bear a greater burden of any orphan share liability in those cases where a reasonable basis for apportionment exists.