Supreme Court to Consider CERCLA Liability Shares

November 9, 2008
Client Alert Newsletter November 2008

On October 1, 2008, the United States Supreme Court agreed to hear the challenges of petitioners Shell Oil Co. and railroads Burlington Northern & Santa Fe Railway Co. and Union Pacific Railroad Co. from a decision of the Ninth Circuit Court of Appeals finding petitioners financially responsible for funding the cleanup of a prior agricultural chemical distribution facility (the "Site"). The Court will review the Ninth Circuit's ruling that Shell was liable as an "arranger" under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for having manufactured and sold soil fumigants used at the Site on property that the railroads leased to a chemical distributor who purchased the chemicals. The chemical distributor, found to be in violation of hazardous waste laws and to have caused significant soil and groundwater contamination, is since defunct. Petitioners have thus been left on the hook for the distributor's handling of the chemicals.

In the decision under review, the Ninth Circuit sided with the U.S. Environmental Protection Agency in finding petitioners jointly and severally liable under CERCLA for millions of dollars in cleanup costs, even though the trial court had found Shell and the railroads liable for only a small portion (under 10 percent each) of the government's substantial cleanup costs. In response to Shell's claims that the Court of Appeals improperly imposed liability based on "the mere sale of a commercially useful product," the Bush Administration opposed Supreme Court review, arguing that Shell "was deeply involved in the [chemical] delivery process" and knew that spills of the chemical "were inherent and inevitable in the delivery process that Shell arranged." Both Shell and the railroads, in their separate but related requests for certiorari, contended that they should not bear responsibility for the entire cost of the cleanup. The Supreme Court is expected to consider whether the Ninth Circuit properly broadened the federal government's ability to seek and recover costs to cleanup Superfund sites from these step-removed companies, and whether it correctly found the petitioners jointly responsible rather than apportioning the cleanup costs.

Petitioners have been supported by the business community, with the United States Chamber of Commerce, the American Petroleum Institute and the American Chemistry Council filing amicus briefs requesting the High Court to review the case, out of concern for the chilling effect that broader exposure for shouldering the costs of site cleanups will have on companies that produce and supply chemicals in their daily course of business. Specifically, these Friends of the Court argued that if allowed to stand the Ninth Circuit's decision would "impose substantial and unwarranted burdens on manufacturers and suppliers of chemicals and other products and disrupt longstanding relationships between suppliers and the common carriers that deliver their goods." These appeals will be considered this term.