Burlington No. & Santa Fe R. Co. v. United States (07-1601); Shell Oil Co. v. United States (07-1607)

Oral argument: Feb. 24, 2009

Appealed from: United States Court of Appeals for the Ninth Circuit (Sept. 4 , 2007)

Throughout the 60's and 70's, a now-defunct company called Brown & Bryant stored agricultural chemical products manufactured by Shell Oil Company on parcels of land owned by Brown & Bryant, Burlington Northern & Santa Fe Railway Company, and Union Pacific Transportation Company. The storage and handling of these chemicals led to leaks, and eventually a cleanup effort headed by California's Department of Toxic Substances Control ("DTSC") and the Environmental Protection Agency ("EPA").  After Brown and & Bryant had ceased to exist, the EPA and DTSC sued the railways and Shell under The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") to recover the costs of the cleanup. The United States District Court for the Eastern District of California found the railways liable because they owned the land on which hazardous materials were stored and processed, and Shell liable for arranging the disposal of the materials. The District Court found the railways liable for 9% of the costs of cleanup and Shell liable for 6%.  The EPA and the DTSC appealed, and the Ninth Circuit reversed the lower court's apportionment of liability, finding that liability should be joint and several. The Ninth Circuit also upheld Shell's liability as the "arranger" of the disposal hazardous substances. In reviewing this case, the Supreme Court will decide whether joint and several liability may be imposed upon several parties under CERCLA even where a district court finds an objectively reasonable basis for dividing the cost of cleanup. The Supreme Court will also decide what constitutes "arranger" liability under CERCLA.

Questions presented

Burlington No. & Santa Fe R. Co. v. United States (07-1601)

The Comprehensive, Environmental, Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., allows the government to obtain reimbursement for the costs of remediating hazardous waste sites from the owners and operators of land on which a disposal of hazardous substances has occurred. Because even passive landowners may be subjected to CERCLA liability, Congress removed language from early CERCLA bills mandating joint and several liability for multiple defendants who own or operate a particular site. In the present case, the Ninth Circuit nevertheless imposed joint and several liability for the entire cost of a facility's remediation on two landlords, even though they owned only a portion of the overall site for a fraction of its period of operation, and the parcel they owned required no remediation.

The question presented is:

Whether the Ninth Circuit erred by reversing the district court's reasonable apportionment of responsibility under CERCLA, and by adopting a standard of review and proof requirements that depart from common law principles and conflict with decisions of other circuits.

Shell Oil Co. v. United States (07-1607)

1. Whether liability for "arranging" for disposal of hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),  42 U.S.C. § 9607(a)(3), may be imposed upon a manufacturer who merely sells and ships, by common carrier, a commercially useful product, transferring ownership and control to a purchaser who then causes contamination involving that product.

2. Whether joint and several liability may be imposed upon several potentially responsible parties under CERCLA, 42 U.S.C. § 9607(a), even where a district court finds an objectively reasonable basis for divisibility that would suffice at common law.

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Issues

Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), whether a manufacturer is liable for spilling or leaking a hazardous substance while delivering that substance to a purchaser.

Under CERCLA, when may a court impose joint and several liability, and when may it, instead, reasonably apportion liability among responsible parties?

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Facts

In 1960, Brown & Bryant, Inc. ("B&B"), a now-defunct company, owned and operated an agricultural chemical storage and distribution facility located in Arvin, California on a 3.8-acre parcel of land.  See United States v. Burlington North & Santa Fe Railway. Co., 502 F.3d 781, at 790 (9th Cir. 2008).   To expand its operations, in 1975, B&B leased an adjacent parcel of land from Atchison, Topeka & Santa Fe Railroad Co., which later become Burlington Northern & Santa Fe Railway Co., and the Southern Pacific Transportation, which later became Union Pacific Transportation CoSee id.  B&B used the facility to store and sell agricultural chemical products made by other manufacturers, including a chemical manufactured by Shell, called D-D.  See id. 

Due to both spills during delivery and poor maintenance of storage tanks, substantial amounts of D-D leaked over the years.  See Burlington North & Santa Fe, 502 F.3d at 790.  Because of these leaks, in 1983 the California's Department of Toxic Substances Control ("DTSC") found B&B in violation of several hazardous waste laws.  See id. at 791. An Environmental Protection Agency ("EPA") investigation discovered substantial soil and groundwater contamination.  See id.  Both the DTSC and the EPA began a cleanup effort pursuant to the authority granted to them by the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA").  See id.  In 1992, the EPA and the DTSC filed an action under CERCLA against B&B, the railroads, and Shell for reimbursement of the costs of the investigation and cleanup.  See id.  

The District Court found the Railroads and Shell liable.  See Burlington North & Santa Fe, 502 F.3d at 791.    The District Court found the Railroads violated 42 U.S.C. § 9607(a)(1) and 42 U.S.C. § 9607(a)(2) as they "owned" a facility where hazardous substances were disposed of.  The District Court also found Shell in violation of 42 U.S.C. § 9607(a)(3), as an "[arranger] for the disposal" of hazardous substances. See id. at 792.  The District Court apportioned the liability of each party, finding the railroads liable for 9% of the total cleanup costs, and Shell liable for 6% of the costs.  See id.  The court found B&B 100% joint and severally liable.  See id.  However, by then B&B was no longer in existence, and as a result, the DTSC and EPA had to bear a large proportion of the cleanup costs.  See id. at 789.  The DTSC and the EPA appealed, seeking to hold the railroads the Shell jointly and severally liable for the entire judgment.  See id.  Shell also appealed the District Court's ruling, on the grounds that it was not an "arranger" as defined by § 9607(a)(3)See id.

The Ninth Circuit found that joint and several liability was appropriate, because the railroads and Shell had failed to show a "reasonable basis" upon which to apportion the damages.  See Burlington North & Santa Fe, 502 F.3d at 804-806.  On the issue of Shell's liability, the Ninth Circuit affirmed the District Court's decision.  See id. at 810.Under a broad reading of "arranger" liability the Ninth Circuit found Shell liable because the very nature of its transactions with B&B inevitably lead to leaks.  See id. The Supreme Court granted certiorari on October 1, 2008. See 129 S.Ct. 30.

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Discussion

This case is potentially important because it may influence how courts apportion liability among parties that violate 42 U.S.C. § 9607(a) of CERCLA.  A decision affirming the Ninth Circuit's ruling would make it easier for courts to find responsible parties joint and severally liable for cleanup costs.  On the other hand, a decision reversing the Ninth Circuit will make the primary polluting party responsible for a greater proportion of the cleanup costs.  Either way, the outcome of this case will alter how potential responsible parties ("PRPs") view the risks inherent in handling hazardous substances, as well as influence who bears the costs of cleanup. This decision will also influence how broadly "arranger" liability under 42 U.S.C. § 9607(a)(3) will be read by courts.  The extent of "arranger" liability will have profound implications for manufacturers of products that contain even trace amounts of hazardous substances.  

The railroads believe that a decision in favor of the United States and the California will lead to the de facto creation of a strict liability regime. See Brief for Petitioner Burlington No. & Santa Fe R. Co. ("Burlington") at 51-52.  The Railroads argue that such a regime would be a disincentive for parties handling hazardous materials to take precautionary measures, since liability would no longer be based on the amount of contamination that a party is responsible for.  See id. Such an environment will create a disincentive for firms to take any precautionary measures with regards to the handling of hazardous materials, and instead drive them to take no precautions and hope that they will not be found liable.  See id.  The Railroads further contend that society as a whole, rather than "marginal" PRPs, is best suited to bear the risk of insolvency of a polluting party.  See id. at 56.  Shell believes that a decision in favor of the United States and California will result in more stringent requirements for apportioning liability, making it difficult for future CERCLA defendants to avoid joint and several liability. See Brief for Petitioner Shell Oil Co. ("Shell") at 14. 

A decision in favor of Shell and the railroads could make it easier for CERCLA defendants to escape liability.  See Brief for Respondent State of California ("California") at 23.  Such a decision would negate CERCLA's goal of distributing the economic costs of cleanup. See Burlington North & Santa Fe, 502 F.3d at 804.  The Ninth Circuit pointed out that holding parties only partially responsible for contamination joint and severally liable helps ensure that at least "some entity with connection to the contamination picks up the tab."  See id. at 804.  A decision for the railroads would force society to bear the costs of an insolvent PRP, when such cost might be better borne by the disposers of hazardous substances themselves.  See id.

With regards to Shell's "arranger" liability, a decision in favor of the United States and California could result in a broader reading of "arranger" liability.  A broad reading of "arranger" liability would potentially make a large number of businesses liable under CERCLA, placing an "immense burden" on manufacturers of products that contain even traces of hazardous substances.  See Brief Amicus Curiae of the International Association of Defense Counsel ("IADC") in Support of Petitioner at 21-26.  The Civil Justice Association of California contends that adopting the Ninth Circuit's reading would lead to a situation whereby all "leakage" of a useful product that is also hazardous will be interpreted as "waste disposable," resulting in even the seller of the product being liable under 42 U.S.C. § 9607(a)(3) as the "arranger."  See Brief Amicus Curiae of the Civil Justice Association of California ("Civil Justice Association") in Support of Petitioner at 19-20.

On the other hand, a decision in favor of Shell will lead to a narrower reading of the statutory language.  Such a reading will make it easier for PRPs to escape legal liability by simply transferring legal ownership of hazardous substances to a third party that would carry out the disposal.  See Brief for Respondent United States at 14.  The United States argues that a broad reading of 42 U.S.C. § 9607(a)(3) is more consistent with CERCLA's legislative intent of having responsible parties, rather than the public at large, bear the costs of environmental cleanups.  See id. at 13.  In addition, California argues that Shell's narrow reading would allow a party that sells hazardous products that require disposal in the future to "close its eyes" and shield itself from future liability.  See Brief for Respondent California at 32.  This would allow certain parties to escape CERCLA liability even when the disposal of a hazardous substance by a third party is the inevitable result of a particular transaction. 

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Analysis

Enacted in 1980, the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), also known as Superfund, regulates the release and removal of hazardous substances.  It provides, in relevant part, that parties responsible for contamination are liable for "all costs of removal or remedial action incurred by the United States Government or a State." 42 U.S.C. § 9601 et seq. In these consolidated cases, the Supreme Court will decide if, under CERCLA, 42 U.S.C. § 9607(a)(3), a manufacturer is liable for spilling or leaking a hazardous substance while delivering that substance to a purchaser and clarify when, under CERCLA, 42 U.S.C. § 9607(a), a court may impose joint and several liability or may, instead, reasonably apportion liability among responsible parties.

Arranger Liability

CERCLA provides that "any person who by contract, agreement, or otherwise arranged for disposal or treatment . . . of hazardous substances owned or possessed by such person" is liable for contamination under the concept of arranger liability. See 42 U.S.C. § 9607(a)(3). Petitioner, Shell Oil Co. ("Shell"), and Respondents, the United States and the State of California ("California"), dispute whether Shell is liable under CERCLA arranger liability.

The United States and California contend that the District Court and the U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") correctly held that Shell is liable under CERCLA arranger liability for spilling or leaking a hazardous substance, the chemical D-D, while delivering that substance to its purchaser, Brown and Bryant. See Brief for Respondent State of California ("California") at 16-23; see also Brief for Respondent United States at 23-24. The United States and California advocate a broad construction of arranger liability. See Brief of California at 25­-26; see also Brief of United States at 17-19. Accordingly, the United States defines "disposal" to encompass both spillage and leakage, not merely "transactions designed primarily for disposal" as Shell contends. Id. 17-19, 26-27. Furthermore, according to both the United States and California, no intent to dispose is required for a manufacturer who knows that his or her arrangements will directly result in disposal of a hazardous substance, e.g. through spillage or leakage. See Brief of California at 26-28; see also Brief of United States at 23-25. The United States and California assert that Shell possessed the requisite knowledge, because Shell was "deeply involved in the delivery process." Brief of California at 29; see Brief of United States at 24-25. Additionally, the United States argues that ownership or control of the hazardous substance is not required at disposal, only at arrangement, and thus, that it is irrelevant whether Shell owned or controlled the D-D at disposal. See id. at 27-28. In closing, California summarizes its argument, arguing that Shell "arranged for disposal" of D-D, and is thus liable under CERCLA arranger liability, because Shell owned the D-D, provided for, i.e. "arranged," its transfer, and knew that some of it would be disposed of at delivery. See Brief of California at 28-30.

Shell counters that the lower courts erroneously held Shell liable under CERCLA arranger liability. See Brief for Petitioner Shell Oil Co. ("Shell") at 14-15. Shell advocates construing CERCLA based on its plain meaning. See id. at 16-18. Accordingly, Shell argues that "arranged for disposal" clearly requires an intent to dispose and not mere knowledge of disposal. See id. at 18-21. According to Shell, spillage and leakage during delivery do not constitute intentional disposal, nor would Shell intentionally dispose of a valuable, useful consumer product. See id. at 24-25. Shell distinguishes between hazardous waste and useful consumer products, arguing that the D-D spilled or leaked during delivery did not constitute waste, because it was a useful consumer product. See id. at 22-25. Finally, Shell contends that the plain meaning of "owned or possessed" is either ownership or "actual control" of the hazardous substance at disposal, not arrangement, and asserts that Shell neither owned nor actually controlled the D-D at disposal. id. at 26-28. Therefore, Shell did not arrange for the disposal of D-D and thus, is not liable under CERCLA arranger liability. See id. at 28-31.

Joint and Several Liability

42 U.S.C. § 9607(a) defines liability under CERCLA. See 42 U.S.C. § 9607(a). Petitioners, Burlington Northern and Santa Fe Railway Company, et al ("Burlington"), and Shell, and Respondents, the United States and California, dispute when, if ever, a court may impose joint and several liability under CERCLA.

Burlington and Shell contend that the Ninth Circuit erred by reversing the District Court and holding Burlington and Shell jointly and severally liable, because the District Court had a reasonable basis for apportioning liability. See Brief for Petitioner Burlington No. & Santa Fe R. Co. ("Burlington") at 22-24, 38-47; see also Brief of Shell at 32, 37-39. Burlington argues that the Ninth Circuit failed to accord the District Court sufficient deference under its "clear error" standard of review. Brief of Burlington at 39. According to Burlington, the District Court was not clearly erroneous in estimating "causal share" using time, geography, distinctions among contaminants, and safety margins as factors. Id. at 41-47. Furthermore, both common law precedents and the Restatement (Second & Third) of Torts ("Restatement") employ a reasonable basis, i.e. approximation, standard to apportion liability. See Brief of Burlington at 25-33; see also Brief of Shell at 37-44. According to Burlington, although CERCLA imposes strict liability on landowners for contamination, strict liability does not justify "abandoning the common law's approach to apportionment," because strict liability is not synonymous with joint and several liability. Id. at 47-52. Nonetheless, although Congress rejected mandatory joint and several liability, the Ninth Circuit's standard for reasonably apportioning liability, because so high, would seemingly mandate it. See Brief of Burlington at 53; see also Brief of Shell at 32-34. Finally, imposing nearly mandatory joint and several liability raises issues regarding CERCLA's constitutionality, because CERCLA applies retroactively and thereby potentially exposes landowners to liability for contamination from the distant past, not possibly caused by them. See Brief of Burlington at 57-59.

Conversely, the United States and California rejoin that the Ninth Circuit correctly held Burlington and Shell jointly and severally liable, because Burlington and Shell failed to establish a reasonable basis for apportioning liability among responsible parties. See Brief of California at 36-41; see also Brief of United States at 29. According to the United States and California, in keeping with common law precedents and the Restatement, CERCLA provides for joint and several liability unless a liable party proves a reasonable basis for apportioning liability. See Brief of California at 36-41; see also Brief of United States at 30-35. Here, Burlington and Shell failed to do so. See Brief of California at 36-41; see also Brief of United States at 35-36. According to the United States, the District Court was unreasonable to rely on time, geography, and distinctions among contaminants as factors, because they were derived from "gross approximations," incomplete records, and anecdotes. Id. at 42-52. Finally, California contends that the District Court should not have considered equity, i.e. fairness, in reaching its determination, because liable parties are free to seek contributions from other liable parties. See Brief of California at 58-59.

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Conclusion

In Burlington No. & Santa Fe R. Co. v. United States and Shell Oil Co. v. United States, the U.S. Supreme Court will determine if, under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), a manufacturer is liable, as an arranger, for spilling or leaking a hazardous substance while delivering that substance to a purchaser and clarify when, under CERCLA, a court may impose joint and several liability or may, instead, reasonably apportion liability among responsible parties. The Supreme Court's decision will likely impact manufacturers and purchasers of hazardous substances, owners and lessees of contaminated lands, cleanup of contaminated lands, and reimbursements to federal and state governments.

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Authors

Prepared by: Lauren Jones and Gary Liao

Edited by: Joe Hashmall

Additional Sources

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Edited by: