The U.S. Supreme Court decided two consolidated cases that will have far reaching effects on Superfund liability risk analysis for years to come. The Supreme Court held that a chemical company which sells product to a distributor in bulk shipments is not liable as an "arranger" under CERCLA Section 9607 (a) (3) unless the chemical company intended that its customer dispose of the chemicals. The court also narrowed the "joint and several liability" provisions under CERCLA by reversing the Court of Appeals decision imposing joint and several liability for the clean-up costs. Burlington Northern & Santa Fe Railway Company, et al. v. United States, 556 U.S. (2009).
This decision will have critical implications for chemical companies which conduct product stewardship inspections of their customer's plants. If Shell Oil Company had been held liable under CERCLA because it had knowledge of inadvertent leaks or spills at its customer's site after having conducted inspections and having made recommendations for improved handling methods, then the chilling effect on such product stewardship inspections would have been significant.
The U.S. EPA and the State of California sued Shell Oil Company to recover $8 million in remediation costs for a clean-up in Arvin, Calif., where Shell's customer, a chemical distributor, had a number of leaks and spills while handling the product, and had gone out of business. The Supreme Court in an 8-1 decision rejected the attempt to broaden the concept of "arranger" liability under CERCLA as a means to recover clean-up costs under that fact scenario.
The Supreme Court noted that because CERCLA does not define "arranger," the ordinary meaning of the term applies. Since "arrange" implies action directed to a specific purpose, Shell could not be an arranger unless it had taken intentional steps to dispose of a hazardous substance. Shells' mere knowledge that spills and leaks continued to occur is insufficient grounds for concluding that Shell "arranged for" the disposal of the hazardous substances. Therefore, Shell did not have liability as an arranger, even though it continued to sell to the customer after having observed evidence of the spills or leaks.
Perhaps of even broader applicability, the Supreme Court agreed that clean-up liability can be apportioned under CERCLA even where the harm created by the contamination is not divisible. The factors the District Court used to apportion liability were: 1) the percentage of land area owned by the railroads compared to the entire site, 2) duration of operations on the land leased from the railroads, and 3) the fact that only two of the chemicals caused the remediation to be necessary. The Supreme Court agreed that these were all appropriate factors to apportion liability. Under the District Court's analysis, the railroads were liable for just 9 percent of the clean-up cost and the Supreme Court upheld that finding.
The Supreme Court decision was a significant blow to the cost recovery action brought by the state and federal governments. Only a very small percentage of the overall clean-up costs were found to be recoverable from the railroads as owners of the contaminated property and no arranger liability was upheld.
Possible Practical Results:
- Fewer arrangers will be held liable at Superfund sites;
- More litigation over whether a party "intended" disposal;
- More litigation over the appropriate factors for apportionment of liability; and
- Fewer parties will be willing to conduct remediation if they are concerned about their ability to recover all of their costs if joint and several liability is not applied.
Important Implications for the chemical industry:
- "Product Stewardship" inspections of a customer's facility will not invoke CERCLA liability as an arranger;
- Even if leaks or spills are observed, a chemical company can still sell to a customer so long as it does not intend to dispose of chemicals; and
- Deep pockets do not mean that liability automatically attaches.