Supreme Court Makes Sense of CERCLA

May 6, 2009

In a May 4 decision notable for its relative brevity, broad support (only one dissent) and common sense, the Supreme Court addressed years of overreaching CERCLA decisions by limiting the reach of the Superfund statute in two important ways. Burlington Northern & Santa Fe Railway Co. v. United States, No. 07-1601, __ S. Ct. __, 2009 WL 1174849 (May 4, 2009). First, the Court approved the “useful products” defense, refusing to assign “arranger” liability to sellers of virgin chemicals. Second, the Court reversed the imposition of joint and several liability on passive landlords, finding that factors such as geography and duration could be used to apportion liability for an indivisible harm such as a plume of contaminated groundwater.

The case involved two consolidated cost recovery actions regarding the same site. The U.S. Environmental Protection Agency and the California Department of Toxic Substances Control (DTSC) brought the first action against the Burlington Northern & Santa Fe and Union Pacific railroad companies as lessors of a portion of the contaminated site. EPA and DTSC also brought the second action against Shell Oil Company, claiming that by supplying chemical products and providing safeguards against the release of those products Shell had arranged for the disposal of those products and was a responsible party with respect to the subsequent contamination. The District Court held Shell and the Railroads liable but refused to hold them jointly and severally liable as requested by the government. Instead, the court allocated substantially reduced portions of the site costs among the parties, ruling that the costs were divisible based on the site characteristics and history. The Ninth Circuit affirmed the court’s decision holding Shell liable as an arranger, but reversed the court’s holding regarding cost allocation and reasserted joint and several liability.

As to Shell, the Supreme Court rejected the Ninth Circuit’s expansive reading of the language in Section 107(a)(3) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). That section imposes liability on “arrangers” for the disposal of hazardous substances. Shell had for many years sold new chemicals to an agricultural chemical distribution business, which operated sloppily, created environmental liability for itself, and ultimately went out of business. EPA and DTSC convinced the District Court and the Ninth Circuit to impose arranger liability on Shell as a seller of a useful, new product because Shell knew that some “disposal” — i.e., spilling and leaking — would occur during transloading of the chemical at the facility and had provided directions on avoiding releases. The Supreme Court rejected that broad reading, looking to the dictionary meaning of the word “arrange” to conclude it meant “action directed to a specific purpose.” Thus, “an entity may qualify as an arranger when it takes intentional steps to dispose of a hazardous substance.” Mere knowledge that spills and leaks would occur, or providing instructions for reducing leaks and spills was not sufficient to transform Shell’s sale of useful products into arranging for disposal of those materials. As a result, the Court held that Shell was not liable for the resulting contamination.

As to the Railroads, the Court rejected joint and several liability, finding that the District Court’s allocation to the Railroad, as the owner and landlord for a portion of the facility, was supported by the evidence and comported with principles of apportionment. The Court acknowledged that CERCLA imposed strict liability on owners of contaminated property under Section 107(a)(1). But, relying on what it termed the “seminal opinion” on apportionment in CERCLA actions, United States v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Ohio 1983), the Court held that CERCLA did not mandate joint and several liability in every case. The Court noted that the Ninth Circuit had agreed that the appropriate standard in evaluating allocation of costs in CERCLA cost recovery actions is § 433A of the Restatement (Second) of Torts, which provides: “when two or more persons acting independently cause a distinct or single harm for which there is a reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of the total harm that he has himself caused.”

As a result, the Court reversed the Ninth Circuit’s refusal to accept the allocation crafted by the District Court based on basic, known site characteristics. The Court rejected the Ninth Circuit’s insistence on an extremely high burden of proof for parties seeking to allocate costs–that data supporting apportionment decisions be precise and detailed. The Railroads and many amici argued that such a standard was unreasonable and unrealistic in most Superfund cases where detailed historical data is typically unavailable. Rather, the Court found that basic and easily identifiable factors such as geography (percentage of land owned), duration of ownership and relative cost of remediation of different hazardous substances had been appropriately considered and reasonably applied by the District Court.

The Court’s ultimate conclusion, that joint and several liability does not apply where CERCLA defendants can demonstrate a reasonable basis for apportionment following the common law principles of § 433A of the Restatement (Second) of Torts, is not entirely surprising, but it is rare. CERCLA jurisprudence has long been burdened by a retributive judicial approach abetting EPA’s efforts to expand greatly the scope of CERCLA liability in its search for deep pockets to fund remediation. The Court’s decision here, following its decision in Bestfoods, 524 U.S. 51 (1998), and Atlantic Research, 551 U.S. 128 (2007), represents an important effort to restore balance and meaning to CERCLA. The Supreme Court directs District Courts to read CERCLA carefully but also authorizes them to dispense rough justice in Superfund allocation disputes.