CERCLA — Joint and Several Liability — “Arranger” Liability

The Court granted certiorari today in Burlington Northern & Santa Fe Ry. Co. v. United States, No. 07-1601, and Shell Oil Co. v. United States, No. 07-1607, consolidating two cases that together will address two important questions concerning liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601-9675. The first question is when CERCLA liability may be imposed under the so-called “arranger” theory of liability. The second is whether and when liability may be apportioned among multiple potentially liable defendants.

How the Court resolves those issues will likely have significant implications for landowners and for producers of hazardous substances, particularly when their lessees or customers go bankrupt after having caused environmental contamination.

CERCLA allows state and federal authorities to clean up contaminated areas and later seek to recover the clean-up costs from those whom the statute makes potentially liable for the contamination. 42 U.S.C. § 9607(a). In addition to the owners and operators of a contaminated property, any person who “arranged for disposal or treatment … of hazardous substances [it] owned or possessed” is potentially liable. Id. at § 9607(a)(3). Furthermore, although the statute itself is silent on the question, courts have long held that CERCLA imposes joint and several liability on all potentially liable parties. However, every court of appeals that has considered the question also has held that apportionment of liability under common law principles is appropriate in at least some CERCLA cases. See Burlington Northern & Santa Fe Ry. Co. v. United States, 520 F.3d 918, 935 (9th Cir. 2008) (citing cases).

The cert petitions that were granted today arise from a case in which two railroad companies owned part of the land on which a facility for storing and selling agricultural chemicals was located. The operator of that facility, Brown & Bryant (B&B), became insolvent. The Environmental Protection Agency (EPA) and the State of California then sought to impose liability on the railroad companies for clean up costs at the site. It also sought to impose liability on Shell Oil Company, which had sold some of the contaminants to B&B and shipped them by common carrier. In the decision below, reported at 520 F.3d 918, the Ninth Circuit held that both sets of defendants were liable.

As to liability on an “arranger” theory, the court adopted a broad interpretation of the relevant statutory text, § 9607(a)(3), holding that liability should be imposed on the seller of a hazardous substance when “disposal of hazardous wastes is a foreseeable byproduct” of the sale, even if disposal is not the purpose of that sale. 520 F.3d at 948 (emphasis added). Thus, according to the Ninth Circuit, “an entity can be an arranger even if it did not intend to dispose of the product.” Id. at 949. Other Circuits, by contrast, have adopted a far less expansive view of the statutory language and held that intent to dispose is a predicate to liability. See, e.g., United States v. Cello-Foil Products, Inc., 100 F.3d 1227, 1231 (6th Cir. 1996); Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 751 (7th Cir. 1993)

The second issue, apportionment of liability, is significant because it affects how much money the government can recover from a particular defendant. If damages are apportioned, then a particular defendant is responsible only for its portion of the overall clean-up cost; if damages are not apportioned, then each defendant is responsible for the entire clean-up cost. The difference between apportioned and joint and several liability is particularly pronounced when a potentially liable party is bankrupt.

With regard to apportionment of liability, the Ninth Circuit held, as have other circuits, that liability may be apportioned in accordance with common law principles. However, it found that apportionment was not appropriate in this case because there was no “reasonable basis for divisibility.” 520 F.3d at 943-945. According to the Ninth Circuit’s rather exacting standard, for a landowner to escape joint and several liability, the landowner must show that the “discrete portions of the contamination did not originate on land they owned at the time of the toxic disposal.” Id. at 943. Similarly, a producer who sold the hazardous substance would have had to prove its relative contribution to the overall contamination.

Absent extensions of time, amicus briefs in support of the petitioners will be due on November 24, 2008, and amicus briefs in support of the respondents will be due on December 24, 2008. Any questions about this case should be directed to John Hahn (+1 202 263 3346) or Andrew Tauber (+1 202 263 3324) in our Washington, D.C. office.