U.S. Supreme Court Narrows Scope of Arranger Liability Under CERCLA; Lessens Evidentiary Standard for Apportionment of Liability Among Potentially Responsible Parties
Earlier this month, the U.S. Supreme Court issued an 8-1 opinion markedly narrowing the scope of “arranger liability” and declining to impose joint and several liability in situations where a “reasonable basis” exists for the apportionment of liability pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). The Court’s May 4, 2009 decision in Burlington Northern & Santa Fe Railway Co., et al. v. United States, et al., No. 07-1601 (together with No. 07-1607, Shell Oil Co. v. United States, et al.) will have dramatic implications for Superfund law.
Factual Background
The Burlington Northern case addresses the liability of Burlington Northern and the Union Pacific Railroad (collectively, the Railroads), whose predecessors owned a portion of the property on which a small chemical distributor operated an agricultural chemical product repackaging facility. In addition, the case addresses the liability of Shell Oil, which sold fumigant to the chemical distributor, some of which was periodically spilled at the facility during delivery. Beginning in the 1980’s, significant soil and groundwater impacts were discovered in connection with the chemical distributor’s operations at the site. The chemical distributor subsequently went out of business, and the United States and the State of California brought a cost recovery action against the Railroads and Shell Oil for over $8 million in response costs.
Arranger Liability Contingent Upon Intent to Dispose
With respect to Shell Oil, the government plaintiffs argued that the company was jointly and severally liable under CERCLA as an “arranger” for the disposal of hazardous substances where spills were reasonably foreseeable, or the company had actual knowledge of such spills. In this case, the Supreme Court acknowledged that arranger liability must be evaluated on a case-by-case basis, looking beyond the parties’ characterization of the sale or transfer. However, the Court explained that, to be subject to strict liability under CERCLA, arrangers must have in fact “intended” for disposal to take place, stating that the term “arrange” implies “action directed to a specific purpose.” The Court looked at the ordinary meaning of “arrange,” finding that this intent requirement recognizes the “many permutations of ‘arrangements’” that lie between situations where disposal is clearly the sole purpose of the transaction, and situations where the hazardous substances eventually disposed (unbeknownst to the seller) were initially sold as useful products.
The Court’s plain reading of the statute concluded that “an entity may qualify as an arranger . . . when it takes intentional steps to dispose of a hazardous substance.” In this case, even though Shell Oil exercised some degree of control over the mode of delivery and transfer of its chemical products, the Court concluded that the intent standard was not met, and Shell Oil was not liable as an arranger under CERCLA. In reaching its conclusion, the Court acknowledged that Shell Oil knew that minor spills were occurring, but found that such knowledge alone was insufficient to demonstrate intent to dispose, particularly in light of the fact that Shell Oil took steps to prevent spills during product delivery.
A “Reasonable Basis” for Apportionment of Liability
The government also alleged that the Railroads were jointly and severally liable based on their ownership of a small portion of the site. The Supreme Court agreed with the District Court’s conclusion that the harm attributable to the Railroads was capable of apportionment, and upheld its determination that the Railroads were responsible for only 9% of site remediation costs. In doing so, the Court disagreed with the Ninth Circuit’s conclusion that the evidence relied upon by the Railroads was insufficient to establish a reasonable basis for apportionment because their share could not be precisely calculated, yielding an exact percentage of harm. Instead, the Court upheld the District Court’s reliance on: (1) the percentage of the total site owned by the Railroads, (2) the periods of ownership by the Railroads and leasehold by the chemical distributor, and (3) whether and to what extent the types of hazardous substances spilled on the leased land drove response costs, to support an apportionment. The Court concluded that the evidence was sufficiently precise to provide a “reasonable basis” for apportionment.
Impacts of the Decision
Either of these conclusions, alone, could be expected to have a significant impact on Superfund practice; together, they represent a major shift. As a result of this opinion, an increase in litigation regarding (1) the intent needed to demonstrate arranger liability, and (2) what constitutes a “reasonable basis” for apportionment is expected. The Court’s conclusion that parties who have knowledge of minor spills during product delivery are not necessarily liable as arrangers for disposal calls into question lower court decisions imposing liability where incidents such as those spills were reasonably foreseeable or known. If, as expected, the Court’s interpretation of arranger liability ultimately reduces the number of parties held liable at contaminated sites as arrangers, liability for response costs may increasingly fall to site owners, transporters, and other responsible parties.
Additionally, the opinion raises important orphan share issues. Where liability for response costs at such contaminated sites is not divisible, liability is joint and several, and responsibility for the orphan share of liability generally falls to the remaining potentially responsible parties. In contrast, where a reasonable basis exists for the apportionment of liability, potentially responsible parties are only responsible for their own shares of liability and not the unassignable orphan share. By arguably weakening the evidentiary standard for the apportionment of liability under CERCLA, the Supreme Court has likely increased the burden on the federal government for the assumption of orphan share liability at contaminated sites. The Court’s decision may also result in the re-evaluation of private party actions premised on joint and several liability, as well as the application of insurance coverage to situations where insurers had covered all or a portion of a site’s orphan share.
For Further Information
Troutman Sanders has substantial experience with CERCLA, and our Group is working with its clients to evaluate the impact of the Court’s Burlington Northern decision on current matters. Please contact us if you have any questions, or would like additional information on the decision or its potential ramifications.