U.S. Supreme Court Issues Landmark Decision Under Federal Superfund Law

May 6, 2009
by ROBERT FOX and MICHAEL MELOY
MGKF Special Alert

On May 4, 2009, the United States Supreme Court, in an 8-1 decision written by Justice Stevens, issued a landmark decision involving the federal Superfund law. In Burlington Northern & Santa Fe Railway Co. v. United States (No. 07-1601, May 4, 2009), the Supreme Court held that mere knowledge of spills in the course of delivery of a useful product does not make the supplier of that product liable under Superfund as an arranger. Rather, Superfund requires intent to dispose of hazardous substances as an integral part of arranger liability. The Supreme Court held further that a liable party under Superfund may avoid joint and several liability by establishing a reasonable basis for apportioning the cost of the remedy. Significantly, the Supreme Court found that the length of time that a party owns a site, the percentage of a site owned by a party and even the volume of hazardous substances that contributed to the cost of the remediation of the site can all serve as a reasonable basis for apportionment thereby preventing the imposition of joint and several liability.

Facts and Procedural History

In 1960, Brown & Bryant, Inc., a chemical distributor, began operating on a parcel of land in Arvin, California. In 1975, Brown & Bryant expanded its operations to an adjacent parcel owned by two railroads. Shell Oil Company sold chemical products to Brown & Bryant. Chemical spills occurred during the transfer and delivery of Shell's product at the site. Aware that such spills were commonplace, Shell took several steps in the late 1970s to encourage the safe handling of its products during transfer and delivery. Some of the chemicals spilled at the railroad parcel impacted groundwater at the site and contributed to a portion of the cleanup costs.

In 1989, the United States Environmental Protection Agency and the State of California remediated the site and brought suit against Shell and the railroads to recover the governments’ cleanup costs. The District Court found Shell liable under Superfund as a party who "arranged for disposal" under Section 107(a)(3) of Superfund and the railroads liable as site owners. The District Court held, however, that the liability of those parties was several, not joint and several, and apportioned 9 percent of the site liability to the railroads and 6 percent to Shell. The Ninth Circuit Court of Appeals affirmed that Shell and the railroads were liable under Superfund, but reversed the District Court's holding on joint and several liability. The Court of Appeals found that the evidentiary record was insufficient to establish apportionment on any basis and suggested that only precise evidence establishing the hazardous substances disposed of, in exact amounts, at exact locations over defined periods of time would suffice as evidence of a reasonable basis of apportionment. The Supreme Court then granted certiorari to review the decision.

Shell's Liability as an Arranger

The Supreme Court held that Shell was not liable as an "arranger" under Section 107(a)(3) of Superfund. The Supreme Court framed the issue as follows: on one extreme, an entity which enters into a transaction for the sole purpose of discarding a no longer useful product is liable as an arranger; on the other extreme, an entity which sells a new and useful product that unbeknownst to the seller is disposed of, is not liable. The Supreme Court then probed the "many permutations of 'arrangements' that fall between these two extremes."

The Supreme Court held that the key determination was not what the nature of the transaction involved ("sale" versus "disposal"), but rather that the plain meaning of the term "arrange" implies intent to dispose, not mere knowledge. In this case, the facts did not support the conclusion that Shell "intended" to dispose of its product at the site. To the contrary, the evidence revealed that Shell took numerous steps to avoid the spills and releases associated with the handling of its products by Brown & Bryant and thus was not liable as an arranger.

Apportionment

The Supreme Court endorsed the traditional test under the Restatement (Second) of Torts for determining whether liability is joint and several or divisible in a Superfund action. Under the Restatement, the harm is divisible if it is a distinct harm or "there is a reasonable basis for determining the contribution of each cause to a single harm." The Supreme Court found that the record before the District Court established three reasonable bases for apportionment: the railroad parcel constituted only 19 percent of the surface area of the entire site; Brown & Bryant leased the railroad parcel for only 45 percent of the time that the site was operated; and two of the substances spilled on the railroad parcel contributed to two-thirds of the overall site remediation costs. When multiplied together and including a rounding factor, the railroads could establish a severable share of 9 percent.

The Supreme Court concluded that what the District Court had done was reasonable and sufficiently supported by the record, and therefore reinstated the District Court’s ruling on joint and several liability.

Impact of the Decision

The Supreme Court's opinion is likely to have an impact on arranger liability cases that do not involve the unambiguous, "intended" disposal of waste. Arranger liability for pesticide formulation, sale of co-products and certain, non-exempt recycling activities will now be subject to litigation as to whether disposal was "intended."

More significantly, the opinion throws open the door to a potentially wide spectrum of apportionment arguments in defending against government actions and private cost recovery and contribution claims. The imposition of joint and several liability may no longer be virtually automatic and parties are likely to consider strongly divisibility arguments as an important part of their strategy in all Superfund cases. Essentially, what were formerly arguments related solely to equitable allocation among Superfund liable parties have been elevated to arguments that may defeat joint and several liability as a threshold consideration.

If you have any matters that may be affected by this opinion, would like any further information concerning the opinion or would like a copy of the opinion itself, feel free to contact Robert Fox at 484-430-2312 or rfox@mgkflaw.com, or Michael Meloy at 484-430-2303 or mmeloy@mgkflaw.com.