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The Supreme Court Clarifies the Requirements for "Arranger" Liability and Allocation of Liability in CERCLA Cases - Part I.

Burlington Northern & Santa Fe Railway Co. v. United States: The Supreme Court Clarifies the Requirements for "Arranger" Liability and Allocation of Liability in CERCLA Cases - Part I.

The Supreme Court recently clarified the requirements for "arranger" liability and allocation of liability in CERCLA cases in Burlington Northern & Santa Fe Railway Co. v. United States, No. 07-1601, -U.S.- (U.S. May 4, 2009). The facts of this case are typical of most CERCLA cases.

In 1960, Brown & Bryant, Inc. ("B&B") began operating an agricultural chemical distribution business on a 3.8 parcel in Arvin, California. As part of its business, B&B purchased pesticides that included D-D and Namagon from Shell Oil Company ("Shell").

In 1975, B&B expanded its operations onto an adjacent 0.9 acre parcel of land owned by predecessors to Burlington Northern and Santa Fe Railway Company and Union Pacific Railroad Company (collectively, "Railroads"). Both parcels were graded toward a sump and drainage pond (not lined until 1979) on the primary parcel.

Despite Shell's precautions in delivering the pesticides and its instructions to B&B for proper handling, B&B was a "sloppy operator" and leaked the pesticides during operations of its facility. Eventually, the California Department of Toxic Substances Control and, then, the EPA began investigating B&B's violations of hazardous waste laws. The agencies discovered significant soil and groundwater contamination, including a plume of groundwater contamination under the facility that threatened to leach into an adjacent supply of potential drinking water.

B&B started remediation, but had become insolvent by 1989 and declared bankruptcy. California and the EPA assumed the cleanup efforts costing more than $8 million by 1998. Additionally, the Railroads incurred more than $3 million in response costs under a 1991 EPA administrative order directing them, as owner of part of the site, to perform certain remedial tasks.

In 1992, the Railroads sought to recover these costs from B&B. That lawsuit was consolidated in 1996 with two recovery actions that California and EPA brought against Shell and the Railroads. California and EPA asserted that Shell was liable as person who "arranged for disposal" of the subject pesticides under CERCLA § 107.
Lower Courts' Determinations

The District Court held that both Shell and the Railroads were liable (Shell as an arranger, and the Railroads as an owner). However, the Court did not impose joint and several liability, as is usually the case under CERCLA when there is more than one liable party. The Court concluded that the single harm at the site was divisible and capable of apportionment and applied the following factors:

  • percentage of the site owned by the Railroads (19%);
  • duration of B&B's business divided by the term of the Railroads' lease (45%); and
  • the court's determination that only two of the three polluting chemicals had been spilled on the Railroad's portion of the site and that those two chemicals were responsible for two-thirds of the overall site contamination.

The Court determined that the Railroads were only responsible for 9% of the Governments' response costs by multiplying 19% by 45% by 66% (totaling 6%) and accounting for a 50% calculation error. The District Court also determined that Shell was only responsible for 6% of those costs. The Governments appealed this apportionment and Shell appealed the determination of its liability.

The Court of Appeals for the Ninth Circuit upheld the determination that Shell is liable as an arranger. However, the Court reversed the finding on apportionment, holding that, while "the contamination traceable to the Railroads and Shell, with adequate information, would be allocable, as would be the cost of cleaning up the contamination", , the District Court erred in finding that the record established a reasonable basis for apportionment. Burlington Northern & Santa Fe Railway Co. v. United States, 520 F.3d 918, 942 (9th Cir. 2008). The Court held that Shell and the Railroads are jointly and severally liable for all the Governments' response costs.

The Supreme Court granted certiorari to determine (1) whether Shell was properly liable as an arranger under CERCLA § 107(a)(3); and (2) whether the Railroads and Shell were properly held liable for all the Governments' response costs.

In our next post, we will discuss the Supreme Court's holdings and reasoning.

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