Reducing Environmental Risk

The Supreme Court Clarifies the Requirements for “Arranger” Liability and Allocation of Liability in CERCLA Cases – Part IV.

Following our posts on the Supreme Court’s recent decision in Burlington Northern & Santa Fe Railway Co. v. United States, No. 07-1601, -U.S.- (U.S. May 4, 2009) (“BNSF“), this post will discuss implications of this decision on apportionment in Superfund cases as various commentators (including this one) see it. Our view is that the Court should have considered whether the trial court had the power to sua sponte apportion costs in the BNSF case. Only if the Court had answered “yes” to that question should it have addressed whether there was a rational basis for the apportionment found by the lower court. The burden of proof is on the party seeking apportionment. However, the Railroads never raised apportionment in this case, failing to acknowledge any liability for contamination on their parcel throughout the 13-year lease. The government plaintiffs also refused to acknowledge the potential divisibility of harm. Accordingly, neither plaintiffs nor defendants provided any information on the allocation issue, and the District Court was left to its own devices to determine proper apportionment. Indeed, it seems that the District Court bent over backwards to find a basis for apportionment.

Justice Ginsburg acknowledged this anomaly in the only dissenting opinion. She opined that, by sua sponte apportioning costs, the District Court deprived the governments of the right to respond to the Court’s apportionment analysis as the governments would have done if the Railroads had raised the apportionment argument themselves.

As to whether there was an actual rational basis for apportionment in this case, we think the high court’s decision has muddied the waters. The primary driver for the trial court’s apportionment here was geography and the fact that the Railroads (which were only passive owners, i.e., they did not operate the property) owned only one-fifth of the entire site where the disposal occurred. BNSF is no better a guidepost than prior decisions as to whether geography and other factors, such as volume, constitute a rational basis on which to apportion costs.

Stating the obvious, this decision, however, makes it easier for PRPs to argue that apportionment is appropriate. Therefore, PRPs will spend more time (and money) to establish apportionment. In a roundtable discussion by telephone on the subject in which we participated, one government attorney noted there will likely be fewer government settlements with PRPs, and those that do settle will take longer to negotiate. PRPs, in general, used to be similarly situated against the government. Now, they may find themselves in different individual situations, which may increase the likelihood of PRPs forming groups or tiers to manage larger Superfund cases.

Another government commenter noted that the Department of Justice is asking EPA henceforth to bolster its facts against PRPs before bringing a case or issuing a CERCLA § 106 unilateral administrative order.

Though the court does not address the orphan share issue head on, this decision has major impacts in that regard. The government is likely to see larger orphan shares as more PRPs that are alleged to be “arrangers” are able to successfully show they are not liable and as courts become more willing to apportion damages. One EPA attorney, speaking on that same call discussing the BNSF decision, noted that EPA has only a limited budget to pay the orphan shares at Superfund sites; it likes to reserve that fund for cases that are truly orphan share cases (i.e., cases where there are no viable PRPs as parties responsible for the contamination have become bankrupt or otherwise disappeared). This decision may force EPA to pay orphan shares in cases where PRPs have escaped joint and several liability through apportionment.

It seems that the ultimate result of this decision is that plaintiffs (whether the government or a private party suing for cost recovery or contribution) will have to bring more parties to the table early on.

Among the unanswered questions that this case raises is not only what are the decision’s effect on PRPs, but what are its effect on parties that undertake a remediation voluntarily. As this case seems to make it easier for a court to apportion liability among PRPs, will parties who voluntarily clean up a site be less likely to undertake that clean up because they fear they will have a more difficult time recovering their costs though litigation? Future CERCLA cases may provide answers to these questions.



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