Publication

May 11, 2009Client Alert

Recent U.S. Supreme Court Decision Narrows Scope and Extent of Superfund Liability

The United States Supreme Court’s decision in Burlington Northern v. United States (“BNSF”) provides new opportunities for potentially responsible parties (“PRPs”) to limit potential liability for the cleanup of contaminated sites under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). In this 8-1 decision, the Court narrowed the scope of arranger liability and concluded that the imposition of joint and several liability was inappropriate because there was a reasonable basis to apportion liability.

Section 107 of CERCLA imposes liability on past and present owners and operators, transporters, and those who “arranged for the disposal or treatment” of hazardous substances. Historically, the courts have broadly interpreted the liability provisions of CERLCA, imposing liability on those who may not have had the specific intent to dispose of a hazardous substance. Although early case law interpreting CERCLA recognized potential limitations to joint and several liability where the harm was divisible, few PRPs were successful in obtaining apportionment of liability due to the high burden of proof imposed by courts. With BNSF, the Court has signaled a departure from this past CERCLA jurisprudence.

The contamination at issue in BNSF arose from the historic agricultural chemical distribution operations of Brown & Bryant (“B&B”) on a four acre parcel of land in California. B&B expanded its operation to an additional acre that it leased from the joint owners Atchison, Topeka & Sante Fe Railway Company and Southern Pacific Transportation Company (now known respectively as Burlington Northern and Santa Fe Railway Company and Union Pacific Railroad Company)(“Railroads”). In connection with B&B’s operations, it purchased pesticides from Shell Oil. The Shell pesticide products were supplied via common carrier in bulk tanker trucks that were transferred to the bulk storage tank located at B&B. During the transfer of the pesticides from the tankers, there were spills. Shell was aware that such spills routinely occurred and took several steps to encourage the safe handling of its products.

In 1983, the California environmental authorities began investigating B&B and significant soil and groundwater contamination was discovered. B&B undertook some cleanup, but became insolvent and ceased all operations. The state and federal agencies spent more than $8 million to investigate the contamination and later issued an order to the Railroads (as present owners of a portion of the contaminated site) demanding further cleanup. The Railroads spent more than $3 million in response costs. Cost recovery actions followed and Shell was joined to the proceedings as an alleged responsible party by virtue of its purported arrangement for disposal (i.e. its sale of the pesticide products to B&B).

Both the District Court and the Appeals Court concluded that Shell’s knowledge of accidental spills was enough to establish arranger liability. The Supreme Court disagreed. The Court concluded that “arrange” implies action directed for a specific purpose and that an entity could only qualify as an arranger when it takes intentional steps to dispose of hazardous substances. The Court rejected the District Court’s finding that disposal of a hazardous substance was a necessary part of the sale and delivery process and that Shell’s knowledge that releases occurred as part of this process were sufficient to establish arranger liability. The Court concluded that the evidence did not support the inference that Shell intended such spills to occur because Shell took numerous steps to encourage B&B to reduce the likelihood of spills. As a result, the Court held that Shell was not liable as an arranger.

The Railroads were liable as they owned the land leased by B&B at the time of the contamination and now. When assessing the scope of the Railroads’ liability, the Court reversed the Court of Appeals’ decision imposing joint and several liability. Instead, the Court agreed with the District Court’s holding that there was a reasonable basis to apportion the Railroads’ share of site remediation costs. The Court affirmed the District Court’s simple formulaic apportionment that looked at the size of the leased parcel, the duration of the lease, and the identity of the chemicals of concern driving remedial costs. In this case, the Railroads’ parcel constituted only 19% of the total site acreage; the Railroads had leased the parcel to B&B for 13 years (or 45% of the time B&B operated their facility); and only spills of two key chemicals on the Railroad’s parcel contributed two-thirds of the overall contamination that required cleanup. Multiplying these factors (.19 x .45 x .66) resulted in an apportionment of 6% that was further adjusted by 50% to account for any error, resulting in a final apportionment of 9% of the total site costs. The Court reaffirmed and upheld the reasonableness of this approach.

A complete copy of the decision can be found at: http://www.supremecourtus.gov/opinions/08pdf/07-1601.pdf.

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