United States: Supreme Court Considers CERCLA Liability In Burlington Northern & Santa Fe Railway Case

Supreme Court Considers CERCLA Liability in Burlington Northern

The United States Supreme Court's recent opinion in Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. ___ (2009), will embolden parties to challenge liability allegations under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq. (CERCLA). The Court upheld the district court's refusal to impose joint and several liability, finding that "the facts ... reasonably supported the apportionment of liability." The Court also held that selling and shipping products to customers is not arranging for disposal of those products merely because incidental spills and releases occur on the customer's property. These holdings will encourage parties to challenge efforts under CERCLA to impose joint and several liability and/or arranger liability.

Background of the Case

Burlington Northern involved an agricultural chemical distribution facility that had become contaminated with the chemicals it was distributing. Burlington Northern & Santa Fe Railway (Railroad) owned a strip of land adjacent to the facility that also had become contaminated by releases on Railroad property as the chemicals were transported to the distribution facility. Some of the chemicals were manufactured by Shell Oil Company (Shell), which had specified how its products were to be transported, stored, and handled. The owner of the distribution facility became insolvent in the late 1980s. The U.S. Environmental Protection Agency (EPA) and the state spent $8 million cleaning up the facility. EPA brought suit against the Railroad and Shell, seeking to impose joint and several liability on both for the entire $8 million. The district court found both parties liable, the Railroad under CERCLA § 107(a)(1)(2) as the owner of the contaminated strip of land adjacent to the contaminated distribution facility, and Shell under § 107(a)(3) for having arranged for the disposal of hazardous substances, since its products were incidentally spilled as they were transported and handled on the contaminated property. However, the district court did not impose joint and several liability, but instead determined that there was a reasonable basis for apportioning liability at the site and imposed nine percent of the costs on the Railroad and six percent on Shell.

Divisibility of CERCLA Liability

EPA and most federal courts have imposed strict, joint and several liability under CERCLA on practically any party responsible for any hazardous substance found at a site that requires remediation. Although it has always been understood that joint and several liability could be avoided where the source of the harmful contamination at a site was "reasonably divisible," see e.g. United States v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Oh. 1983), in application, few have fashioned, insisted upon, or been successful in convincing EPA or the reviewing courts to accept a divisibility defense to joint and several liability. Accordingly, even though divisibility arguments were helpful in developing contractually enforceable apportionment or allocation agreements among jointly and severally liable parties, divisibility has rarely been successful when asserted as a defense against joint and several liability.

A Refreshed Perspective on Divisibility of CERCLA Liability

In Burlington Northern, the Court reaffirmed that liability should be apportioned when environmental harm at a site is reasonably divisible. The Court noted that the U.S. Congress did not intend for CERCLA liability to be joint and several for every potentially responsible party. The Court approved of the factors that lower courts have used to apportion liability, including proportional volumetric, chronological, and geographical considerations. The Court affirmed the district court's apportionment decision that considered, among other things, the proportion of the contaminated property the Railroad owned, the proportion of the total contamination located on the Railroad's property, the proportion of time that the Railroad had been operating on its strip of land, and the connection between the contamination on the Railroad's property and the contamination that was essentially responsible for the $8 million cleanup. The Court held that the district court's allocation of liability was supported by the evidence and that divisibility was appropriate. In so holding, the Court reversed the court of appeals' imposition of joint and several liability.

Clarifying the Definition of Arranger

In addition to its ruling regarding apportionment of liability, the Court also concluded that Shell was not liable as an arranger at the site. On this point, the Court reversed both the district court and the court of appeals and held that CERCLA "arranger" liability can only be imposed when there is an intent to dispose of the substances causing contamination. The Court acknowledged that Shell was aware that incidental spills of its products occurred at the facility during transport and distribution, but held that knowledge of incidental spills does not satisfy the "intent to dispose" requirement for imposing arranger liability. As a result, the Court held that Shell's sale of products to the agricultural chemical distribution facility was not a disposal arrangement under CERCLA where, as in this case, Shell merely shipped its product to the facility, but did not own, manage, or handle the products that were spilled at the facility.

Conclusions and Expectations

The reach of the Burlington Northern decision remains to be defined by future judicial and administrative action. Will apportionment be "sufficient cause" to refuse to comply with a CERCLA § 106 order? Will this be the death knell of the typical EPA settlement vehicle (i.e. the judicial or administrative consent order), where the settling parties agree to be jointly and severally liable for the entire remediation, leaving it to the parties to apportion liability contractually among themselves? What is certain is that the Supreme Court's affirmance of a practical apportionment based upon simple principles like proximity, proportionality, and impact on the overall remedial costs is likely to result in more aggressive divisibility arguments and more complicated settlement discussions. Parties facing CERCLA liability should rigorously review divisibility arguments and consider insisting that any settlement be apportioned rather than joint and several.

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