Supreme Court Ruling May Help Cos. Sued Under CERCLA

The U.S. Supreme Court's decision earlier this month, that a company must show intent to dispose of chemicals to be liable as an "arranger" under the "Superfund Law," could benefit corporations caught up in potential liabilities under that statute, a legal expert said.

Because the 8-1 decision, reached on May 4, limits the definition of "arrange for" to the ordinary meaning of the words, David Erickson, a partner for the environmental practice in the Kansas City office of Shook, Hardy and Bacon, LLP, said the group of people who can be held liable as an arranger shrinks.

This could benefit companies being sued under the Superfund Law, or the Comprehensive Environment Response, Compensation and Liability Act (CERCLA), he said.

In the case, Burlington Northern & Santa Fe Railway Co. v. United States, the court held Shell Oil Company is not liable as an arranger for the contamination of a parcel of land located in Arvin, Calif. Shell had sold the pesticide D-D to Brown & Bryant Inc. (B&B), an agricultural chemical distributor formed in 1960, and as a result of equipment failures, the chemical had spilled multiple times during transfers and deliveries.

The California Department of Toxic Substances Control and the federal Environmental Protection Agency (governments) determined, after an investigation, that the spills had caused significant soil and ground water contamination.

In 1989, the governments used their CERCLA authority to clean the Arvin site, spending more than $8 million by 1998.

CERCLA, the Supreme Court explained, "is designed to promote the cleanup of hazardous waste sites and to ensure that cleanup costs are borne by those responsible for the contamination."

The governments sought to hold Shell, as well as Burlington Northern, Santa Fe Railway Company and Union Pacific Railroad Company (railroads), liable for the cost of the cleanup.

The railroads owned part of the land on which B&B operated.

A district court held the railroads liable for 9 percent of the governments' cleanup costs, and Shell liable for 6 percent.

The Ninth Circuit Court of Appeals upheld the decision with respect to liability, but held the railroads and Shell jointly and severally liable for the governments' response costs.

The Supreme Court disagreed that Shell should be held liable. The court's opinion, written by Justice John Paul Stevens, noted that CERCLA does not specifically define what it means to "arrange for" disposal of a hazardous substance, and therefore "arrange for" is given its ordinary meaning. This, the opinion states, means that in order to be held liable, Shell has to enter into D-D sales with the intent that at least a portion of the product be disposed of during the transfer process.

Shell's actions do not support this, the court ruled. Rather, Justice Stevens pointed out that Shell "took numerous steps to encourage its distributors to reduce the likelihood of spills."

The opinion noted the Court of Appeals "acknowledged that Shell did not qualify as a 'traditional arranger'" under the relevant section of the law. But the Court of Appeals stated that "Shell could still be held liable under a 'broader' category of arranger liability if the disposal of hazardous wastes was a foreseeable byproduct of, but not the purpose of, the transaction, giving rise to arranger liability."

Justice Stevens said, "While it is true in some instances an entity's knowledge that its product will be leaked...may provide evidence of the entity's intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity 'planned for' the disposal...."

The railroads were held liable because they owned part of the property during the contamination period, but the Supreme Court ruled the railroads are not subject to joint and several liability for all response costs. The court held the District Court "reasonably apportioned the railroads' share of the site remediation costs at 9 percent."

Justice Ruth Bader Ginsberg filed a dissenting opinion. "Given the control rein held by Shell over the mode of delivery and transfer...Shell was properly ranked as an arranger," Justice Ginsberg wrote.

She added, "Relieving Shell of any obligation to pay for the cleanup...is hardly commanded by CERCLA's text, and is surely at odds with CERCLA's objective...."