On May 4, 2009, the United States Supreme Court, in an 8-1 decision written by Justice Stevens, clarified the standard for "arranger" liability associated with the sale or distribution of a product. Burlington Northern and Santa Fe Railway Company, et al. v. United States, No. 07-1601, slip op at 12 (May 4, 2009) ("Burlington"). The Court also appeared to signal that a more deferential standard would be applied in reviewing a trial court's determination that liability under CERCLA is divisible and can be apportioned.
Supreme Court Looks to Intent to Dispose to Trigger Arranger Liability
In Burlington, the Supreme Court reversed a decision by the United States Court of Appeals for the Ninth Circuit holding Shell Oil Company ("Shell") liable as an arranger under CERCLA because it was aware that some of the product it delivered to Brown & Bryant, an agricultural chemical distribution business, was spilled or leaked. The Ninth Circuit held that Shell could be held liable even though it did not intend to dispose of a hazardous substance. 520 F.3d 918, 949 (9th Cir. 2008). As reasoned by the Ninth Circuit, Shell could be held liable as an "arranger" if the "disposal of hazardous wastes [wa]s a foreseeable byproduct of, but not the purpose of the transaction giving rise to" arranger liability. Id. at 948.
The Supreme Court by contrast held "[w]hile it is true that in some instances an entity's knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity's intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity 'planned for' the disposal particularly when the disposal occurs as a peripheral result of the legitimate sale of an unusual, useful product." Burlington at 12. The Court then went on to hold unequivocally that "[i]n order to qualify as an arranger, Shell must have entered into [a] . . . sale . . . with the intention that at least a portion of the product be disposed of . . .." Id. The Court also made the point that "Shell's mere knowledge that spills and leaks continued to occur is insufficient grounds for concluding that Shell 'arranged for' the disposal . . ." pursuant to CERCLA. Id. at 13.
Supreme Court Upholds Trial Court's Apportionment of Liability Without Significant Evidentiary Support
The Supreme Court also reversed the Ninth Circuit on the issue of whether there was a reasonable basis for apportionment of liability. The Ninth Circuit had reversed the trial court's decision that the record established a reasonable basis for apportionment of the liability of the "railroad defendants" (the defendants that owned the rail spur where releases of Shell's product occurred) and allocating a 9% share to such defendants. In apportioning liability, the trial court had used the surface area of the railroad parcels, the period of time the railroads leased their parcel to the agricultural chemical distributor, and a volumetric analysis of the hazardous substances released on the railroad and the chemical distributor property. Id. at 16. The Ninth Circuit criticized the evidence relied upon by the trial court finding a lack of sufficient data to establish the precise proportion of contamination and stated that the factors relied upon by the trial court were not reliable. 520 F.3d at 958.
The Supreme Court emphasized that "CERCLA defendants seeking to avoid joint and several liability bear the burden of proving that a reasonable basis for apportionment exists." Burlington at 14. The Supreme Court, however, also made clear that "apportionment is proper when 'there is a reasonable basis for determining the contribution of each cause to a single harm.'" Id.
It is noteworthy that the Supreme Court upheld the district court's apportionment determination despite the fact that the district court concluded that "neither the duration of the lease nor the size of the leased area alone was a reliable measure of the harm caused . . .." Id. Nonetheless, the Supreme Court concluded "that the facts contained in the record reasonably supported the apportionment of liability." Id. at 17.
Some Practical Consequences of Burlington
- Any party alleged to have arranger liability -- particularly for a product as opposed to a waste -- will assert that it lacked the intent to dispose. Thus, the courts will have to grapple with whether intent to dispose is always determinative of arranger liability, particularly in situations in which the release involves a passive leak or unanticipated or unintended discharge.
- The courts are likely to be more open to apportionment arguments under CERCLA. This may result in more "orphan shares" at sites at which, for example, the most financially viable parties can demonstrate that their liability can be apportioned and that they therefore do not have any joint and several liability for other costs associated with the site.