U.S. Supreme Court Issues Burlington Northern Decision Significantly Limiting "Arranger" and "Joint and Several" Liability Under Federal Superfund Statute
On May 4, 2009, in an 8-1 decision, the U.S. Supreme Court issued a groundbreaking decision in which it significantly limited the scope of “arranger” liability and clarified the applicability of “joint and several” liability under the federal Superfund law. Burlington Northern & Santa Fe Railway Co. et al. v. United States, 556 U.S. ___ (2009).
The decision, written by Justice Stevens, is likely to have a dramatic impact on the federal government’s ability to recoup cleanup costs from potentially responsible parties (PRPs) under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), by limiting the scope of “arranger” liability and removing the blunt impact that the threat of joint and several liability has upon those negotiations. The decision will also impact negotiations among private parties regarding who has liability for specific cleanup costs at contaminated sites.
The Underlying Facts Are Important
In this case, Shell Oil Company was selling pesticides and other chemical products to an agricultural chemical distribution business known as Brown & Bryant (B&B). Burlington Northern and Union Pacific (the Railroads) owned 0.9 acres of land, which was a portion of the overall parcel used by B&B in its operations. Waste water and chemical runoff from the Railroad land as well as the adjacent B&B land were allowed to flow into an unlined drainage pond, which in turn contaminated the underlying ground water.
Of particular note is the fact that Shell insisted that one of its pesticides products, D-D, which was initially sold in drums, be delivered in bulk from tanker trucks to B&B’s bulk storage tanks. The chemical product was then transferred to bobtail trucks, pull rigs and other equipment, with leaks and spills occurring often. Shell took steps to encourage the safer handling of its products, including instituting a self-certification of compliance program. Even though B&B certified that it had made a number of improvements to its facility, it was still known to be a relatively sloppy operator.
Responsibility for Cleanup
Under the federal Superfund statute, four different classes of parties can potentially have liability for cleanup of releases of hazardous substances:
- the current owner and operator of the facility
- the former owner or operator of the facility at the time of disposal
- any person who arranged for disposal or treatment
In this case, the federal and state governments brought suit against the Railroads (as an owner) and against Shell (as an alleged arranger) to recoup more than $8 million in cleanup costs that the governmental entities had incurred after B&B had become insolvent. The Railroads, which incurred approximately $3 million in additional cleanup costs pursuant to an administrative order with EPA, brought suit against B&B to recoup those costs. The two proceedings were consolidated in the U.S. District Court.
After a bench trial, the U.S. District Court found both the Railroads and Shell responsible for the government’s cleanup costs, but did not apply a joint and several standard of liability. Instead, it evaluated a variety of factors and ultimately concluded that the Railroads were responsible for 9 percent of the government’s costs, and that Shell was responsible for 6 percent of those costs.
On appeal, the Ninth Circuit found that Shell could be held liable under a “broader” type of arranger liability if the disposal of hazardous substances was a “foreseeable byproduct” of the transaction in question, even if Shell did not intend to dispose of the hazardous substance. Under the Ninth Circuit’s holding, it did not matter that the product being transported was a useful product intended for sale. The Ninth Circuit also determined that, even though response costs could be allocated among the parties, the record did not contain a reasonable basis for doing so, and therefore found the Railroads and Shell to be jointly and severally liable for the government’s response costs.
Intent Is Key
The U.S. Supreme Court, after granting certiorari, reversed the Ninth Circuit’s decision. The Court found that entities would be found liable as “arrangers” only if there was an intent to dispose of hazardous substances. The Court identified two extreme cases:
- An entity could be found liable as an arranger if it entered into a transaction for the purpose of discarding a used and no longer useful hazardous substance.
- An entity could not be found liable as an arranger if it sold a new and useful product which later, without its knowledge, was disposed of in a way that caused contamination.
In the Burlington case, the facts lay somewhere in between. The Court acknowledged that the resolution of this question required a fact intensive inquiry, but one that should not extend beyond the limits of the statute itself. Because CERCLA does not specifically define what is meant by “arrang[e] for” disposal of a hazardous substance, the Court said that this phrase must be given its ordinary meaning. In common usage, “arrange” implies action directed to a specific purpose. Therefore, an entity may qualify as an arranger only when it takes intentional steps to dispose of a hazardous substance. The entity’s state of mind is relevant.
Mere knowledge that spills and leaks might occur as a peripheral result of a legitimate sale of a useful product was not enough to conclude that Shell had “planned” for the disposal or that it constituted an “arranger.” Quite to the contrary, Shell took a number of steps to try to reduce the likelihood of spills.
Prior Holdings Reaffirmed
The Supreme Court also reaffirmed prior holdings that liability may be apportioned under a “divisibility of harm” analysis and that joint and several liability is not required in every case. The Court pointed to the Chem-Dyne decision, 572 F. Supp. 802, in which the court concluded that joint and several liability was not required in every case brought under CERCLA, but could be apportioned on a “divisibility of harm” basis, relying on the Restatement (Second) of Torts, §433A. The Supreme Court noted that the party seeking to avoid joint and several liability has the burden of proving that a reasonable basis for apportionment exists. It also noted pointedly that the parties in this case had not assisted in their defense, and had essentially abdicated their responsibilities by taking a “scorched earth” approach, and had left the apportionment job to the District Court. Nevertheless, the Supreme Court concluded that apportionment was reasonable and proper in this case because the record provided a reasonable basis for the District Court’s conclusions. The Supreme Court rejected the government’s assertion that CERCLA imposed joint and several liability based on other factors, such as uncertainties about how much different pollutants from different portions of the overall facility caused or contributed to contamination conditions.
The Bottom Line
Companies should take note of this decision and fully understand how they might be impacted now or in the future. The following are the essential results of the Burlington Northern decision:
- It will be much more difficult for the government to hold an entity responsible as an “arranger” in the future, particularly where there was no intent to dispose of a hazardous substance, and where any disposal was incidental to a legitimate sale.
- Parties who wish to avoid joint and several liability bear the burden of providing a reasonable basis for allocating liability and will not benefit by taking a “scorched earth” approach.
The U.S. Supreme Court decision is available for review at http://www.supremecourtus.gov/opinions/08pdf/07-1601.pdf.