On May 4, 2009 the United States Supreme Court handed down its much-awaited decision in the case of Burlington Northern & Santa Fe Railway v. United States, No. 07-1601 (and its companion case of Shell Oil Co. v. United States, No. 07-1607), 556 U.S. ___, Slip Op. The majority opinion, written by Justice John Paul Stevens and joined in by six other Justices, states that in order to be liable as an “arranger for disposal [of hazardous substances],” a person must act intentionally and plan or otherwise take “intentional steps” to dispose. The opinion also provides strong support for the “divisibility” of liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or “Superfund”), even where the government or another plaintiff seeks to impose “joint and several” liability in a cost recovery action brought under Section 107 of the CERCLA. Emphasizing the applicability of traditional tort law principles as to when divisibility is appropriate, the high court stated that apportionment is proper where there is a reasonable basis in the evidence for determining the degree to which a party’s land ownership or activity causes a particular harm.

The facts in the dispute before the Supreme Court over arranger liability were that Shell was a manufacturer and seller of agricultural chemicals. One of Shell’s customers was a wholesale distributor owning and operating on a parcel of real estate in California. The property became seriously contaminated by Shell's product and the products of others. Shell advised its distributors to try to avoid leaks and spills but knew such spills could and would occur.

By a 7 to 1 margin, with Justice Ruth Bader Ginsburg dissenting, the Supreme Court found that "arrange for disposal" means to plan for or otherwise take intentional steps to dispose. The Court stated in its opinion that mere knowledge of spillage occurring:

"is insufficient to prove that an entity 'planned for' the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product. In order to qualify as an arranger, Shell must have entered into the sale of D-D [the product] with the intention that at least a portion of the product be disposed of during the transfer process [for distributor receiving and delivering product]."

It is notable that the majority writes of “unused useful products.” This could presage an analysis that would degrade the holding if ever applied in a case where secondary or recycled materials are involved. However, that is mere speculation. For the time being, manufacturers and sellers of useful products have been given a serious basis on which to defend against CERCLA liability that had not heretofore been universally recognized by the federal courts.

Of even more far-reaching importance to defendants in CERCLA cost recovery actions is the opportunity afforded by the Supreme Court to seek divisibility or apportionment of their responsibility based on evidence that identifies and distinguishes the degree, extent or nature of a party’s responsibility for causing a given harm. In Burlington Northern & Santa Fe Railway, the railroad owned a parcel of real estate that was deemed part of a larger National Priority List site in Arvin, California. The railroad property was shown to be peripheral to the main contamination on the chemical distributor’s adjacent land and to be mostly free of one of three contaminants that dictated the remedial actions necessary. The district court did an analysis that took account of the degree of harm, the length of time that various parties and parcels were involved during contaminating activities, and the extent of contamination by three different chemicals.

The Supreme Court noted that it was unquestioned that the main source of contamination was a pond on the distributor’s land and that the railroad parcel accounted for only about 10 percent of the contamination. These and other facts and factors in evidence provided the basis for a rational division of liability. Although there was room to quibble over particular points in the district court’s analysis, that court’s apportionment should be respected because it had a rational basis, that (as a footnote explains): “was properly rooted in evidence that provided a reasonable basis for identifying the portion of harm attributable to the Railroads.”

An interesting aspect of the high court’s decision on divisibility is that it indicates that the use of rational evidentiary factors which allow for a reasoned determination on divisibility or apportionment is different from using “equitable considerations” to decide contribution claims such as those that could arise under CERCLA Section 113.

For further information, please contact Harvey M. Sheldon or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.